<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
BLUESTAR COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its certificate of incorporation)
<TABLE>
<S> <C> <C>
DELAWARE 4813 62-1757988
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
414 UNION STREET, SUITE 900
NASHVILLE, TENNESSEE 37219
(615) 255-2100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
NORTON CUTLER, ESQ.
GENERAL COUNSEL
BLUESTAR COMMUNICATIONS GROUP, INC.
414 UNION STREET, SUITE 900
NASHVILLE, TENNESSEE 37219
(615) 255-2100
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
CARMELO M. GORDIAN, ESQ. KRIS F. HEINZELMAN, ESQ.
MARK T. GOGLIA, ESQ. CRAVATH, SWAINE & MOORE
BROBECK, PHLEGER & HARRISON LLP WORLDWIDE PLAZA
301 CONGRESS AVENUE, SUITE 1200 825 EIGHTH AVENUE
AUSTIN, TEXAS 78701 NEW YORK, NEW YORK 10019
(512) 477-5495 (212) 474-1000
</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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $0.01 per share $200,000,000 $52,800
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
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 OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8, MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 , 2000
Shares
(BLUESTAR LOGO)
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our common
stock on The Nasdaq Stock Market's National Market under the symbol "BLST".
The underwriters have an option to purchase a maximum of
additional shares of our common stock to cover over-allotments of shares.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS BLUESTAR
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
J.P.MORGAN & CO.
The date of this prospectus is , 2000.
<PAGE> 3
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 2
RISK FACTORS......................... 7
NOTE REGARDING FORWARD-LOOKING
STATEMENTS......................... 17
USE OF PROCEEDS...................... 18
DIVIDEND POLICY...................... 18
CAPITALIZATION....................... 19
DILUTION............................. 20
SELECTED CONSOLIDATED FINANCIAL
DATA............................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 22
BUSINESS............................. 27
MANAGEMENT........................... 44
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS....................... 51
PRINCIPAL STOCKHOLDERS............... 53
DESCRIPTION OF CAPITAL STOCK......... 55
SHARES ELIGIBLE FOR FUTURE SALE...... 59
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED
STATES HOLDERS..................... 61
UNDERWRITING......................... 64
NOTICE TO CANADIAN RESIDENTS......... 67
LEGAL MATTERS........................ 68
EXPERTS.............................. 68
WHERE YOU CAN FIND MORE
INFORMATION........................ 68
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS......................... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL
THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE
DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), 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 DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 4
PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including the consolidated
financial statements and related notes. Our business involves significant risks.
You should carefully consider the information under the heading "Risk Factors".
OUR COMPANY
We are a leading provider of broadband communications and Internet services
to small- and medium-sized businesses in Tier II and Tier III markets, which
encompass cities with populations less than 1.5 million. Our Internet access
services, which are packaged with Web hosting and e-mail, and our high-speed
real private networking services are provided primarily using digital subscriber
line, or DSL, technology. We have deployed a proprietary asynchronous transfer
mode, or ATM, and Internet protocol backbone network to link all of our central
offices and markets. This network allows us to lower our Internet access costs,
control the speed and quality of our broadband services and provides us with a
superior platform for the delivery of additional enhanced services.
We generally are the first competitive broadband communications provider to
small- and medium-sized businesses in the markets we enter, creating an early
mover advantage and allowing us to establish strong relationships with our
target customers and network professionals. In each of our markets, we have a
locally based direct sales team that builds strong customer relationships. We
also ensure a high standard of service quality by providing our own customer
premise equipment installation and customer care services. We collocate our
equipment in central offices that serve a high density of our target customers,
which allows us to serve more potential customers within a market and to provide
a more attractive service offering to businesses with multiple locations or
telecommuters.
Our network deployment began in the Southeast, and we are expanding into
other core markets nationwide in 2000. As of December 31, 1999, we were offering
our services in 25 markets, representing 117 cities. We expect to deploy our
network and roll out our services to a total of 57 markets by year-end 2000. As
of December 31, 1999, we had sold 1,224 high-speed access lines, of which 428
were in service. Of the 1,224 lines sold, 252 lines were sold as part of our
real private network service and 38 of these lines were in service. As of
December 31, 1999, we had collocated our network equipment in 84 central offices
and expect to be in more than 500 central office locations by the end of 2000.
When this stage of our network build-out is completed, our network will pass a
total of 1.2 million small- and medium-sized businesses.
We have entered into a strategic alliance with Lucent Technologies. Lucent
provides us up to $109.0 million in vendor financing for equipment purchases,
installs the equipment for us in central offices we target and provides us up to
$2.0 million in funding for cooperative advertising.
OUR MARKET OPPORTUNITY
We believe that a substantial business opportunity has been created by the
convergence of several factors:
- growth in demand for business data communications services;
- increased demand for Internet services and broadband solutions by small-
and medium-sized businesses;
- limitations of existing telecommunications networks to meet these
demands; and
2
<PAGE> 5
- emergence of low-cost, DSL-based solutions.
OUR COMPETITIVE STRENGTHS
Carrier-Class Network with ATM Backbone. We have deployed a dedicated,
high-speed local access network to provide broadband communications and Internet
access services using DSL and other high bandwidth technologies. By deploying a
dedicated network rather than a shared network, we are able to manage the
quality of our services and the capacity of the network and provide more secure
data transmission. ATM technology enables us to provide faster Internet access
by avoiding multiple Internet protocol routers and gives us flexibility to offer
a wide range of enhanced service offerings. Our Internet protocol technology
allows us to connect with the public Internet to offer Internet access services.
Local Sales, Installation and Customer Service Presence. We offer
potential customers turnkey broadband communications and Internet access
solutions by providing them with a local point of contact for sales,
installation and customer service. Our salespeople's local knowledge allows them
to target appropriate services to each business. Our own technicians install the
equipment at customers' locations, allowing us to ensure high quality and timely
service. When installation is complete, we provide customers with a local
customer service contact should questions or problems arise. We believe that
having a local team that is knowledgeable about our services and our customers'
needs provides significant value to our customers and builds customer loyalty.
Dense Market Coverage. As of December 31, 1999, we offered services in 25
markets and we anticipate providing service to 57 total markets in 2000. We
collocate our equipment in central offices that serve a high density of our
target customers, which allows us to serve more potential customers and
cost-effectively compete with the local telephone company. All of our markets
and central offices are connected to one another by our ATM backbone network,
expanding our service offerings and enhancing the attractiveness of our real
private networking service, called FireLine RPN.
Attractive Suite of Services. We offer a wide range of broadband
communications and Internet services designed to meet the needs of both small-
and medium-sized businesses. We offer "always on" Internet access, primarily
utilizing DSL technology, with connectivity speeds ranging from 144 kilobits per
second to 2.3 megabits per second. In addition to Internet services, we offer
private networking services designed for businesses with several locations
within a market or within multiple markets, or for telecommuters within our
service area. Our broad service offering allows our sales force to upgrade
customers as their needs evolve.
OUR STRATEGY
Our goal is to become a leading provider of broadband communications and
Internet services to small- and medium-sized businesses in the United States. In
order to achieve our goal, we will:
- capitalize on our local sales presence to improve customer loyalty and
reduce customer turnover;
- focus on small- and medium-sized businesses;
- develop new core markets beginning with the goal of creating a nationwide
footprint;
- continue to penetrate existing markets;
- leverage our unique ATM and Internet protocol network architecture to
offer a broader suite of cost-effective, secure and high-quality
services;
3
<PAGE> 6
- offer more enhanced services to attract and retain customers; and
- enhance our brand identity.
We are incorporated in Delaware, and our subsidiaries are incorporated in
Tennessee and Virginia. Our principal executive offices are located at 414 Union
Street, Suite 900, Nashville, Tennessee 37219. Our telephone number is (615)
255-2100.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by BlueStar........... shares
Common stock to be outstanding after this
offering................................. shares
Use of proceeds............................ We intend to use the net proceeds to
continue deploying our network, and for
working capital, operating expenses and
other general corporate purposes.
Proposed Nasdaq National Market symbol..... BLST
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999, and
assumes the conversion of all of our preferred stock into common stock. This
number excludes 6,494,450 shares of common stock issuable upon exercise of
options outstanding as of December 31, 1999 with a weighted average exercise
price of $0.38 per share and 922,735 additional shares of common stock reserved
under our option plan as of December 31, 1999, and assumes no exercise of the
underwriters' over-allotment option.
This offering is for shares. The underwriters have a 30-day option
to purchase up to additional shares from us to cover
over-allotments. Some of the disclosures in this prospectus would be different
if the underwriters exercise the over-allotment option. Unless we state
otherwise, the information in this prospectus assumes that the underwriters will
not exercise the over-allotment option.
Except where we state otherwise, the information we present in this
prospectus:
- reflects a 3-for-1 split of our common stock effected as of October 29,
1999;
- excludes 360,000 shares subject to outstanding warrants at a
weighted-average exercise price of $0.55; and
- reflects the conversion of all outstanding shares of preferred stock into
20,840,514 shares of common stock upon the closing of this offering.
Unless otherwise stated, all references in this prospectus to "we," "us,"
"our" and "BlueStar" include BlueStar Communications Group, Inc., our
wholly-owned subsidiaries, and our predecessors BlueStar Properties, Inc., a
Tennessee corporation, and BlueStar Communications, LLC.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables summarizes our financial data. For a more detailed
explanation of our financial condition and operating results, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and our consolidated financial statements and the notes to those
statements included in this prospectus. Unaudited pro forma net loss per share
have been calculated assuming the conversion of all outstanding preferred stock
into common stock as if the shares had converted immediately upon their
issuance. EBITDA consists of net loss excluding net interest, taxes,
depreciation and amortization. We have provided EBITDA because it is a measure
of financial performance commonly used in the telecommunications industry to
enhance an understanding of operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $ 12,101 $ 771,109
Loss from operations........................................ $ (718,096) $(19,346,582)
Net loss.................................................... $ (717,629) $(18,804,868)
Net loss per share:
Basic and diluted......................................... $ (0.07) $ (2.10)
=========== ============
Weighted average shares................................... 10,154,010 8,953,153
=========== ============
Pro forma net loss per share:
Per share amount.......................................... $ (0.98)
============
Weighted average shares................................... 29,475,196
============
OTHER DATA:
EBITDA...................................................... $ (689,694) $(19,082,610)
=========== ============
</TABLE>
The following table contains a summary of our balance sheet:
- on an actual basis as of December 31, 1999;
- on a pro forma basis to give effect to the issuance of 318,471 shares of
Series C preferred stock to Charles McMinn on January 28, 2000; and
- on a pro forma as adjusted basis to give effect to this offering,
including conversion of the existing Series A, Series B and Series C
preferred stock into common stock upon completion of this offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 12,901,707 $ 17,901,707 $
Working capital.................................. (7,294,784) (7,294,284)
Total assets..................................... 26,506,367 31,506,367
Redeemable convertible preferred stock........... 37,016,697 42,016,697 --
Total stockholders' (deficit) equity............. (18,882,097) (18,882,097)
</TABLE>
6
<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below and the
other information in this prospectus before deciding to purchase shares of our
common stock. The risks and uncertainties described below are not the only risks
facing our company.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR PAST
PERFORMANCE AND PROSPECTS.
We were formed on March 7, 1997 and began offering our services in
September 1998. There are less than two years of material operating history for
you to review in evaluating and analyzing our business. We have limited
historical financial and operating data upon which you can evaluate our business
and prospects. Our limited operating history makes it very difficult for you to
evaluate or predict our ability to, among other things, retain customers,
generate and sustain a revenue base sufficient to meet our operating expenses,
and achieve profitability.
WE CANNOT PREDICT THE GROWTH OR ULTIMATE SIZE OF THE MARKET FOR BROADBAND
COMMUNICATIONS AND INTERNET SERVICES BECAUSE IT IS NEW AND RAPIDLY EVOLVING.
The broadband communications industry is in the early stages of development
and is subject to rapid and significant technological change. Since the industry
is new and because the technologies available for broadband communications
services are rapidly evolving, we cannot accurately predict the rate at which
the market for our services will grow, if at all, or whether emerging
technologies will render our services less competitive or obsolete. If the
market for our services fails to develop or grows more slowly than we currently
anticipate, our business, prospects, financial condition and results of
operations could face material adverse effects. Many providers of high-speed
data communications services are testing products from numerous suppliers for
various applications, and these suppliers have not broadly adopted an industry
standard. In addition, certain industry groups are in the process of trying to
establish standards that could limit the types of technologies we could use. A
number of critical issues concerning commercial use of DSL technology for
Internet access, including security, reliability, reach and cost of access and
quality of service, remain unresolved and may limit the acceptance of these
services in the market.
OUR BUSINESS MODEL IS UNPROVEN.
Our business model and strategy may not be successful. If the assumptions
underlying our business model are not valid or we are unable to implement our
business plan, achieve predicted levels of market penetration or obtain the
desired level of pricing of our services for sustained periods, our business may
not succeed. We focus on selling directly to small- and medium-sized businesses
in Tier II and Tier III markets. Many other DSL providers sell their services
primarily to Internet service providers and others who, in turn, resell these
services to their customers through their sales forces. Moreover, many other DSL
providers currently offer their services primarily in large metropolitan areas.
If their business model proves to be superior to our own, we will not be able to
compete effectively against these providers. We also are deploying our own
network rather than buying network time from other providers. As a result, we
must obtain a sufficient number of customers and generate revenues to meet our
fixed network deployment expense. If we fail to generate enough revenue, we will
not achieve profitability. We only recently began to deploy our services over a
large service area. We may never be able to deploy our network as we have
planned or achieve significant market acceptance, favorable operating results or
profitability.
7
<PAGE> 10
OUR LOSSES WILL CONTINUE FOR THE FORESEEABLE FUTURE.
We have incurred losses and experienced negative operating cash flow for
each month since our formation. We expect to continue to incur significant
losses and negative operating cash flow for the foreseeable future. If our
revenue does not grow as we expect or if our capital and operating expenditures
exceed our plans, then our business, prospects, financial condition and results
of operations will face materially adverse effects. As of December 31, 1999, we
had total stockholders' deficit of $18.9 million.
THE PRICE FOR DIGITAL COMMUNICATIONS SERVICES MAY DECREASE TO LEVELS THAT MAKE
IT IMPOSSIBLE FOR US TO ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW.
Prices for digital communications services have historically decreased over
time. We expect this trend to continue. We may have to reduce our prices in
order to remain competitive, and we may not be able to sustain our current
pricing schedules and profit margins. We may be unable to sell our services at
desired pricing levels which would significantly impair our ability to achieve
profitability or positive cash flow.
OUR DEPENDENCE ON TRADITIONAL TELEPHONE COMPANIES FOR TRANSMISSION FACILITIES
AND THE AVAILABILITY AND CONDITION OF COPPER TELEPHONE LINES MAY DELAY OUR
NETWORK DEPLOYMENT AND PROVISION OF SERVICE TO CUSTOMERS.
Our ability to provide DSL-based services to potential customers depends on
the quality, physical condition, availability and maintenance of copper
telephone lines, which is within the control of traditional telephone companies.
We also depend on the traditional telephone companies to provision and maintain
the quality of the copper telephone lines that we use. Our dependence on
traditional telephone companies could cause delays in expanding our network and
providing our services. Any delays could have a material adverse effect on our
business. In many cases, the copper telephone lines must be conditioned to
permit us to fully implement our DSL-based services. In addition, traditional
telephone companies may not maintain the copper telephone lines in a condition
that will allow us to implement our network effectively. We have not established
a history of leasing large volumes of copper telephone lines from, or working
with, traditional telephone companies. We have experienced and may continue to
experience lengthy delays and varied responses to our requests for copper
telephone lines.
OUR BUSINESS IS DEPENDENT ON OUR ABILITY TO NEGOTIATE AND ENTER INTO
INTERCONNECTION AGREEMENTS WITH TRADITIONAL TELEPHONE COMPANIES.
We must negotiate and enter into interconnection agreements with each
traditional telephone company in whose service area we wish to do business.
Interconnection agreements address the price and terms for the collocation of
our equipment in the traditional telephone company's central office and our
lease of copper telephone lines. We have negotiated interconnection agreements
with Ameritech, BellSouth, GTE, Southwestern Bell, Sprint and U S West. These
interconnection agreements are generally short term, and we may be unable to
renew the interconnection agreements on acceptable terms or at all. In addition,
we cannot be sure that traditional telephone companies will abide by their
obligations under those agreements. We have experienced breaches in the past,
none of which materially affected our operations. Delays in obtaining
interconnection agreements will delay our entry into new markets. In addition,
disputes may arise between us and traditional telephone companies with respect
to interconnection agreements, and we may be unable to resolve those disputes in
our favor or in a timely manner. If we are unable to enter into, or experience a
delay in obtaining, interconnection agreements, our business could be adversely
affected.
8
<PAGE> 11
FAILURE TO OBTAIN SPACE FOR OUR DSL EQUIPMENT IN THE TRADITIONAL TELEPHONE
COMPANIES' CENTRAL OFFICES IN OUR TARGET MARKETS COULD ADVERSELY AFFECT OUR
BUSINESS.
Our strategy requires us to obtain space to install our DSL equipment in
central offices of traditional local telephone companies. Failure to obtain
space in those central offices, known as collocation space, on a timely or
economic basis could have a material adverse effect on our business. We must
negotiate and enter into collocation agreements for each central office in which
we collocate equipment. We may not be able to secure collocation space in the
central offices of our choice on a timely basis. We expect that central office
space will become increasingly scarce as demand for collocation space increases.
The terms of our collocation agreements are generally one to two years and are
subject to renegotiation, renewal and termination provisions. Failure to renew a
collocation agreement would prohibit us from providing continued service to
customers formerly served from the central office specified in the collocation
agreement and limit our ability to obtain new customers in that service area.
WE COMPETE WITH THE TRADITIONAL TELEPHONE COMPANIES ON WHOM WE DEPEND.
Many of the traditional telephone companies are testing or have begun
deploying DSL-based services. BellSouth, the dominant traditional telephone
company in our current main region of operation, is offering a DSL product
primarily to residential subscribers. In addition, these companies also
currently offer high-speed data communications services that use other
technologies. Consequently, traditional telephone companies have strong
incentives to delay entering into interconnection and collocation agreements
with us or providing us access to components of their networks on which our
business is dependent. For example, the traditional telephone companies may
delay:
- our entry into, and renewals of, interconnection agreements with them;
- our access to their central offices to install our equipment and provide
our services; and
- our access to acceptable transmission facilities and copper telephone
lines.
Any delays would negatively affect our ability to deploy our network and
provide services to our customers.
OUR SERVICES ARE SUBJECT TO FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS AND
CHANGES IN THESE LAWS AND REGULATIONS COULD ADVERSELY AFFECT THE WAY WE OPERATE
OUR BUSINESS.
The facilities we use and the services we offer are subject to varying
degrees of regulation at the federal, state and local levels. Changes in
applicable laws and regulations could, among other things, increase our costs,
restrict our access to the central offices of traditional telephone companies or
restrict our ability to provide our services. For example, the
Telecommunications Act of 1996, which, among other things, requires traditional
telephone companies to unbundle network elements and to allow competitors to
collocate their equipment in the telephone companies' central offices, is the
subject of ongoing proceedings, litigation and legislation at the federal, state
and local levels. In addition, the Federal Communications Commission, or FCC,
rules governing pricing standards for access to the networks of the traditional
telephone companies currently are being challenged in federal court. We cannot
predict the outcome of the various proceedings, litigation and legislation or
whether, or to what extent, these proceedings, litigation and legislation may
adversely affect our business and operations. In addition, decisions by the FCC
and state telecommunications regulators will determine some of the terms of our
relationships with traditional telephone companies, including the terms and
prices of interconnection agreements, and access fees and surcharges on gross
revenue from interstate and intrastate services. State telecommunications
regulators determine whether and on what terms we will be authorized to operate
as a competitive local exchange carrier in their state. In
9
<PAGE> 12
addition, local municipalities may require us to obtain various permits or
franchises or to pay franchise fees which could increase the cost of services or
delay development of our network. Future federal, state and local regulations
and legislation may be less favorable to us than current regulations and
legislation and may adversely affect our business and operations.
THE MARKET IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY.
We face and will continue to face significant competition from many
competitors, some with significantly greater financial resources,
well-established brand names and large, existing installed customer bases.
Moreover, we expect the level of competition to intensify in the future. If we
fail to compete effectively, our business prospects would be significantly
impaired. We expect significant competition from:
Traditional Telephone Companies. Most traditional telephone companies have
begun offering DSL services on a limited basis. In addition, most traditional
telephone companies are combining their DSL and Internet access services.
BellSouth, for example, has begun offering its DSL service to residential
consumers. We believe that traditional telephone companies have the potential to
quickly deploy DSL services. Traditional telephone companies have an established
brand name in their service areas, possess sufficient capital to deploy DSL
services rapidly and are in a position to offer service from central offices
where we may be unable to secure collocation space. In addition, the traditional
telephone companies have a large and established customer base. Traditional
telephone companies, such as BellSouth and GTE, are leasing wide area
connections from long distance carriers and already have the copper wire
infrastructure and circuit switched local access networks to reach a large
number of potential customers. In addition, traditional telephone companies are
able to offer their DSL services at prices that may cause us to lower the price
of our DSL services.
Long Distance Carriers. Many of the leading long distance telephone
companies, such as AT&T, MCI WorldCom, Qwest and Sprint, are expanding their
capabilities to support high-speed, end-to-end networking services. Many of
these companies have strong brand name recognition and significant financial
resources. In many metropolitan areas, long distance carriers are providing
high-speed data and voice communications to large companies. They could deploy
DSL services over their current networks. Long distance carriers have
established relationships with traditional telephone companies and access to
their central offices. They have negotiated interconnection agreements with many
of the traditional telephone companies and have secured collocation spaces from
which they could begin to offer competitive DSL services.
Cable Modem Service Providers. Cable modem service providers, like
Excite@Home, Road Runner and High Speed Access, along with their cable partners,
offer high-speed Internet access at speeds sometimes greater than we can
provide. Cable modem service providers provide Internet access over hybrid fiber
coaxial cable networks. These companies provide local access services similar to
our services. Moreover, they typically offer their services at lower prices than
our services.
Wireless and Satellite Data Service Providers. Several new companies are
offering wireless and satellite-based data services. These companies use a
variety of emerging technologies, such as terrestrial wireless services,
point-to-point and point-to-multipoint fixed wireless services, satellite-based
networking and high-speed wireless digital communications. We expect to face
competition from these providers because of the faster speed at which they can
transmit data.
Internet Service Providers. Internet service providers provide Internet
access to residential and business customers. These companies generally provide
Internet access over the traditional telephone companies' telephone lines.
However, some national and regional Internet service providers have begun
offering DSL-based services, or are reselling DSL services offered by
traditional telephone
10
<PAGE> 13
companies or other DSL-based competitive telecommunications providers. Some
Internet service providers, like Mindspring and America Online, have a
nationwide presence and alliances with DSL-based competitive telecommunications
providers.
Competitive Telecommunications Providers. A number of competitive
telecommunications providers, including Covad Communications Group, Rhythms
NetConnections, NorthPoint Communications, Network Access Solutions and DSL.net
have begun offering DSL-based data services. Other competitive
telecommunications providers are likely to do so in the future. The
Telecommunications Act of 1996 specifically grants competitive
telecommunications providers the right to negotiate interconnection agreements
with traditional telephone companies, some of which may be identical in all
respects to our agreement with BellSouth.
WE DEPEND ON ONE SUPPLIER FOR A SIGNIFICANT AMOUNT OF OUR TELECOMMUNICATIONS
EQUIPMENT, ROUTERS AND DSL-READY MODEMS.
Lucent Technologies is our primary supplier of telecommunications
equipment. Lucent supplies nearly all of the telecommunications equipment we
deploy in traditional telephone companies' central offices and supplies all of
our routers and other customer premises equipment. There is no manufacturing
standard for DSL equipment. DSL equipment manufactured by different vendors is
not compatible with Lucent's equipment. In the event Lucent ceases to
manufacture competitive equipment, or in the event we are unable to obtain this
equipment, we would be unable to deploy our network in a timely manner which
would significantly reduce our ability to compete.
WE DEPEND ON CONTRACTORS TO INSTALL THE EQUIPMENT AND WIRING NECESSARY TO
PROVIDE OUR SERVICE IN TRADITIONAL TELEPHONE COMPANIES' CENTRAL OFFICES.
We primarily utilize contractors to install the necessary equipment and
wiring in the central offices of traditional telephone companies, which reduces
our control over the build-out of central offices. Failure to retain experienced
and certified contractors to install the equipment and wiring on a timely,
cost-efficient basis could significantly delay the deployment of our network,
lengthen our installation time and could materially damage our reputation and
business. If we are unable to retain contractors to provide these services, we
will have to complete these installations ourselves, most likely at increased
cost and with significant delay. We may be required to utilize numerous
contractors as we expand our operations, which may result in installation
delays, increased costs and lower overall quality of service.
WE WILL NEED ADDITIONAL FUNDS IN THE FUTURE IN ORDER TO CONTINUE TO GROW OUR
BUSINESS.
We believe our current capital resources combined with the proceeds of this
offering will be sufficient for our funding and working capital requirements for
the deployment and operation of our network into 2001. Thereafter, we will be
required to raise additional capital through the issuance of debt or equity
securities. We may choose to raise additional capital sooner, depending on
market conditions. The actual amount and timing of our future capital
requirements will depend upon a number of factors, including:
- the number of new markets we enter and the timing of entry;
- network deployment schedules and associated costs;
- the rate and price at which customers purchase our services;
- the level of marketing required to attract and retain customers in new
and existing markets; and
- opportunities to invest in or acquire complementary businesses.
11
<PAGE> 14
The value of your investment may be diluted by our future capital raising
transactions. We also may be unsuccessful in raising sufficient capital at all
or on terms that we consider acceptable, which would impair our ability to
continue to expand our business or respond to competitive developments.
OUR FAILURE TO MANAGE OUR GROWTH COULD HAVE A DETRIMENTAL EFFECT ON OUR BUSINESS
RESULTS.
We anticipate that we will add service in a significant number of new
cities and add a substantial number of new employees in geographically dispersed
areas. This rapid growth will continue to place a significant strain on our
management, financial controls, operations, personnel and other resources. If we
fail to manage our anticipated rapid growth, our business will be harmed. If we
are unable to provision the lines we have sold to our customers or if we do not
institute adequate financial and reporting systems, managerial controls and
procedures to operate from geographically dispersed locations, our financial
condition will be materially and adversely affected. We are currently
implementing operational support systems to bill customers, process customer
orders and coordinate with vendors and contractors. Implementation of each of
these systems and subsequent enhancements and integration of these systems could
be delayed or, when implemented, could cause disruptions in service or billing.
To manage our growth effectively, we must successfully implement these systems
on a timely basis and continually expand and upgrade these systems as our
operations expand.
OUR SUCCESS DEPENDS ON OUR RETENTION OF EXECUTIVE OFFICERS.
We are managed by a small number of executive officers. Competition for
qualified executives in the telecommunications industry is intense, and there
are a limited number of persons with comparable experience. We depend upon our
executive officers to execute our business strategy and manage employees located
in geographically dispersed areas. We do not have employment agreements with any
of our executive officers, so any of these individuals may terminate his or her
employment at any time. We do not have "key person" life insurance policies on
any of our executive officers. The loss of these key individuals would have a
material adverse effect on our business.
OUR MANAGEMENT TEAM HAS LITTLE EXPERIENCE WORKING TOGETHER.
We have recently hired a number of new officers, including our Chief
Executive Officer, who joined us in April 1999. In addition, most of our senior
management team has been with us for less than six months. To integrate into our
company, these individuals must spend a significant amount of time learning our
business model and management system, in addition to performing their regular
duties. Accordingly, the integration of the executive officers may result in
some disruption to our ongoing operations.
IF WE FAIL TO RECRUIT AND HIRE QUALIFIED PERSONNEL IN A TIMELY MANNER AND RETAIN
OUR EMPLOYEES, WE WILL NOT BE ABLE TO EXECUTE OUR BUSINESS STRATEGY.
Our future success depends on our ability to identify, hire, train and
retain highly qualified technical, sales, marketing and customer service
personnel. Many parts of the country, and specifically the Southeast, are
experiencing extremely low unemployment levels. As a result, we may be unable to
identify, hire or retain employees with experience in the telecommunications
industry. Moreover, the industry in which we compete has a high level of
employee mobility and aggressive recruiting of skilled personnel. Failure to
attract or to retain experienced employees will result in delays in deploying
our network. In order to attract and retain experienced employees, we are
increasing expenditures associated with employee retention, including
compensation, relocation expenses, employee loans and buyouts of employment
contracts. Any failure to successfully address these issues could materially and
adversely affect our business.
12
<PAGE> 15
A NETWORK FAILURE COULD CAUSE DELAYS OR INTERRUPTIONS OF SERVICE TO OUR
CUSTOMERS AND COULD RESULT IN A LOSS OF CUSTOMERS.
If a natural or man-made disaster reduces or eliminates the flow of
electricity to our network operations center in Nashville, Tennessee, we do not
have a sufficient emergency power supply to maintain the network operations
center. Our current facilities prevent us from adequately providing emergency
power.
In December 1999, we experienced a network disruption that interrupted
services intermittently to some of our customers for up to two days due to an
equipment software problem. As a result, we issued our customers approximately
$8,000 in total credits toward services and lost six customers. A future
interruption could result in substantial customer dissatisfaction or loss.
Additionally, if a traditional telephone company or other service provider fails
to provide the communications capacity we require as a result of a natural
disaster, operational disruption or for any other reason, our services would be
interrupted.
A BREACH OF NETWORK SECURITY COULD RESULT IN LIABILITY TO US AND DETER CUSTOMERS
FROM USING OUR SERVICES.
Our network is vulnerable to unauthorized access, computer viruses and
other disruptive problems. Corporate networks and Internet service providers
have experienced in the past, and probably will experience in the future,
interruptions in service as a result of accidental or intentional security
breaches by Internet users, current and former employees and others.
Unauthorized access could also jeopardize the security of confidential
information stored in the computer systems of our customers, which might make us
liable to these customers, and also might deter potential customers from
contracting for services. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
our customers, cause us to incur significant costs to remedy the problems and
divert the attention of management. We have implemented security measures that
could be circumvented. Any failure of these measures could have a material
adverse effect on our ability to attract and retain customers.
INTERFERENCE WITH VOICE TRAFFIC CAUSED BY OUR NETWORK COULD RESULT IN A DELAY OR
LOSS OF SERVICES.
Certain technical laboratory tests and field experience indicate that some
types of DSL may cause interference with and be interfered by other signals
carried over a traditional telephone company's copper wires. Citing this
potential interference, some traditional telephone companies have imposed
restrictions on the use of asymmetrical DSL technology over their copper lines.
If traditional telephone companies were to restrict our use of DSL technology or
equipment in the future, our business could be materially adversely affected.
WE MAY NOT BE ABLE TO LEASE FIBER OPTIC TRANSPORT FACILITIES FROM THIRD PARTIES.
We lease fiber optic transport facilities from third parties to connect our
equipment within and between metropolitan areas. These third party fiber optic
carriers include long distance carriers, traditional telephone companies and
other competitive telecommunications providers. Many of these entities are, or
may become, our competitors. We may be unable to negotiate or renew favorable
leases with these fiber optic carriers. Further, we depend on the timeliness of
these companies to process our orders for customers who seek to use our
services. We have in the past experienced supply problems with certain of our
fiber optic suppliers, and they may be unable or unwilling to meet our needs on
a timely basis in the future. Moreover, the fiber optic transport providers
whose
13
<PAGE> 16
networks we lease may be unable to obtain or maintain permits and rights-of-way
necessary to develop and operate existing and future networks.
AS AN INTERNET ACCESS PROVIDER, WE MAY INCUR LIABILITY FOR INFORMATION
DISSEMINATED THROUGH OUR NETWORK.
The law relating to the liability of Internet access providers and on-line
services companies for information carried on, or disseminated through, their
networks is unsettled. As the law in this area develops, the potential
imposition of liability upon us for information carried on and disseminated
through our network could require us to implement measures to reduce our
exposure to such liability, which may force us to expend substantial resources
or discontinue service offerings. Any costs that are incurred as a result of
such measures or the imposition of liability could harm our business.
OUR INTELLECTUAL PROPERTY PROTECTION MAY BE INADEQUATE TO PROTECT OUR
PROPRIETARY RIGHTS, AND WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS.
We have applied for trademarks and servicemarks on terms, logos and symbols
that we believe are important to our business and the branding of our services.
We currently have no patents or patent applications pending. We rely on a
combination of licenses, confidentiality agreements and other contracts to
establish and to protect our technology and other intellectual property rights.
The steps we have taken may be inadequate to protect our technology or other
intellectual property. In the event of an unfavorable ruling on any claim, we
may be unable to obtain a license or similar agreement to use technology we rely
upon to conduct our business or may be required to pay a substantial sum as
damages. In addition, our competitors may otherwise learn or discover our trade
secrets.
WE MAY MAKE ACQUISITIONS OF COMPLEMENTARY TECHNOLOGIES OR BUSINESSES IN THE
FUTURE, WHICH MAY DISRUPT OUR BUSINESS AND BE DILUTIVE TO EXISTING STOCKHOLDERS.
We intend to consider acquisitions of businesses and technologies in the
future. Acquisitions of businesses and technologies involve numerous risks,
including the diversion of the attention of management, difficulties in
assimilating the acquired operations, loss of key employees from the acquired
company and difficulties in transitioning key customer relationships. In
addition, these acquisitions may result in dilutive issuances of equity
securities, the incurrence of additional debt, large one-time expenses and the
creation of goodwill or other intangible assets that result in significant
amortization expense. Any of these factors could materially harm our business or
our operating results in a given period or could cause our stock price to
decline.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY, CAUSING
OUR STOCK PRICE TO BE VOLATILE OR DECLINE.
We cannot accurately forecast our quarterly revenue and operating results,
which may fluctuate significantly from quarter to quarter. If our quarterly
revenue or operating results fall below the expectations of investors or
securities analysts, the price of our common stock could fall substantially. Our
quarterly revenue and operating results may fluctuate as a result of a variety
of factors, many of which are outside our control, including:
- the amount and timing of expenditures relating to the rollout of our
network and services;
- our ability to obtain necessary regulatory approvals in a timely fashion;
- the rate at which we are able to attract customers within our target
markets and our ability to retain those customers;
- our ability to deploy our network on a timely basis;
14
<PAGE> 17
- the availability of future financing to continue our expansion;
- technical difficulties or network downtime;
- the availability of collocation space in traditional telephone companies'
central offices and the timing of the installation of our equipment in
those spaces; and
- the introduction of new services or technologies by our competitors and
the resulting pressures on the pricing of our services.
RISKS RELATED TO INVESTING IN OUR COMMON STOCK
THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY.
Prior to this offering, there has been no public market for our common
stock. After this offering, an active trading market in our stock might not
develop or, if such a trading market develops, might not continue. If you
purchase shares of our common stock in this offering, you will pay a price that
was not established in a competitive market. Rather, you will pay a price that
we negotiated with the representatives of the underwriters. Therefore, the price
of our common stock that will prevail in the market after this offering may be
lower than the price you pay.
THE MARKET PRICE OF OUR COMMON STOCK MAY DROP SIGNIFICANTLY WHEN THE
RESTRICTIONS ON RESALE BY OUR EXISTING STOCKHOLDERS LAPSE.
Following this offering, we will have approximately shares of our
common stock outstanding. Approximately shares, or %, of our
outstanding common stock will be subject to restrictions on resale under U.S.
securities laws. Holders of of these shares have agreed not
to sell these shares for at least 180 days following the date of this
prospectus, although Credit Suisse First Boston Corporation can waive this
restriction at any time. As these restrictions on resale end beginning in July
2000, the market price of our common stock could drop significantly if holders
of these shares sell them or are perceived by the market as intending to sell
them. These sales also may make it difficult for us to raise additional funds by
selling equity securities in the future at a time and price that we deem
appropriate.
OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE OF OUR
CAPITAL STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
COMPANY.
Following this offering, our executive officers and directors and principal
stockholders together will beneficially own approximately % of the total
voting power of our company. Accordingly, these stockholders, as a group, will
be able to determine the composition of our board of directors, will retain the
voting power to approve all matters requiring stockholder approval and will
continue to have significant influence over our affairs. This concentration of
ownership could have the effect of delaying or preventing a change in control of
our company or otherwise discouraging a potential acquirer from attempting to
obtain control of our company, which in turn could have a material and adverse
effect on the market price of the common stock or prevent our stockholders from
realizing a premium over the market prices for their shares of common stock.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW COULD
DELAY OR DETER A CHANGE IN CONTROL.
Our corporate documents and Delaware law contain provisions that might
enable our management to resist a change in control of our company. These
provisions include a staggered board of directors, limitations on persons
authorized to call a special meeting of stockholders, prohibitions on
stockholder action by written consent and advance notice procedures required for
stockholders to
15
<PAGE> 18
make nominations of candidates for election as directors or to bring matters
before an annual meeting of stockholders. These provisions might discourage,
delay or prevent a change in our management. These provisions could also
discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and take other corporate actions. The existence
of these provisions could limit the price that investors might be willing to pay
in the future for shares of common stock and could deprive you of an opportunity
to receive a premium for your common stock as part of a sale.
OUR MANAGEMENT HAS DISCRETION OVER THE USE OF THE PROCEEDS OF THIS OFFERING,
WHICH WE MAY NOT USE EFFECTIVELY.
We have not committed the net proceeds of this offering to any particular
purpose. As a result, our management will have significant flexibility in
applying the net proceeds of this offering and could apply them in ways with
which stockholders may disagree. If we do not apply the funds we receive
effectively, our accumulated deficit will increase and we may lose significant
business opportunities.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution because the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is due, in large part, to the fact that our current
investors paid substantially less than the public offering price when they
purchased their shares of common stock. You will experience additional dilution
upon the exercise of outstanding stock options and warrants to purchase common
stock.
16
<PAGE> 19
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." All forward-looking
statements involve substantial risk and uncertainty and you should not place
undue reliance on such forward-looking statements. You can identify these
statements by forward-looking words such as "may," "will," "expect," "intend,"
"anticipate," "believe," "estimate," "continue," "future" or similar
terminology. You should read statements that contain these words carefully
because they discuss our future expectations, make projections of our future
results of operations or financial condition or state other "forward-looking"
information. We can give no assurance that the expectations reflected in the
forward-looking statements will prove to have been correct. Our actual results
could differ materially from those mentioned in the forward-looking statements
contained in this prospectus for a variety of reasons, including the risks
described in the sections captioned "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and elsewhere in
this prospectus. Except as otherwise required by federal securities laws, we
undertake no obligation to update publicly or revise any forward-looking
statements.
17
<PAGE> 20
USE OF PROCEEDS
Assuming an initial public offering price of $ per share, we will
receive approximately $ million from our sale of shares of
common stock, net of underwriting discounts and commissions payable by us. If
the underwriters exercise their over-allotment option in full, we will receive
an additional $ million in net proceeds. We intend to use the net
proceeds of this offering for general corporate purposes, including funding:
- the continuing deployment of network services in our existing markets;
- our planned rollout in additional markets;
- working capital;
- selling and marketing activities; and
- operating expenses.
We also may use a portion of the net proceeds to acquire or invest in
complementary businesses. Pending use of such net proceeds, we intend to invest
the net proceeds in short-term, investment grade securities to the extent
permitted by law.
The actual amounts we spend will vary significantly depending upon a number
of factors, including future revenue growth, if any, capital expenditures, the
amount of cash generated by our operations and other factors, many of which are
beyond our control. Additionally, we may modify the number, selection and timing
of our entry with respect to any or all of our targeted markets. Accordingly,
our management will retain broad discretion in the allocation of the net
proceeds.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock, and we
do not intend to pay cash dividends on our common stock in the foreseeable
future. We currently expect to retain future earnings, if any, to fund the
operation and expansion of our business. Our ability to declare and pay cash
dividends on our common stock could be further limited by agreements governing
indebtedness that we may incur in the future.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the issuance of 318,471 shares of
Series C preferred stock to Charles McMinn on January 28, 2000; and
- on a pro forma as adjusted basis to give effect to this offering,
including conversion of the existing Series A, Series B and Series C
preferred stock into common stock upon completion of this offering.
You should read the following table in conjunction with our consolidated
financial statements and the notes to those statements that are included in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 12,901,707 $ 17,901,707 $
============ ============ ===========
Long-term debt, net of current portion...................... 503,174 503,174
Redeemable convertible preferred stock: --
Series A - 12,345,003 issued and outstanding, actual and
pro forma; and none issued and outstanding pro forma as
adjusted................................................ 5,936,688 5,936,688
Series B - 8,177,040 issued and outstanding, actual and
pro forma; and none issued and outstanding pro forma as
adjusted................................................ 31,080,009 31,080,009
Series C -- none issued and outstanding; 318,471 issued
and outstanding pro forma and none issued and
outstanding pro forma as adjusted....................... -- 5,000,000
------------ ------------ -----------
Total redeemable convertible preferred stock............ 37,016,697 42,016,697
------------ ------------ -----------
Stockholders' (deficit) equity:
Common Stock, $0.01 par value, 60,000,000 shares authorized,
11,712,900 shares issued and outstanding, actual and pro
forma; 150,000,000 shares authorized, shares
issued and outstanding, pro forma as adjusted............. 117,128 117,128
Additional paid-in capital.................................. 417,025 417,025
Deferred compensation....................................... (51,687) (51,687)
Accumulated deficit......................................... (19,364,563) (19,364,563)
------------ ------------ -----------
Total stockholders' (deficit) equity.................... $(18,882,097) $(18,882,097)
------------ ------------ -----------
Total capitalization.................................... $ 18,637,774 $ 23,637,774 $
============ ============ ===========
</TABLE>
The share information set forth above excludes:
- 6,494,450 shares subject to outstanding options under our stock option
plan with a weighted average exercise price of $0.38 per share;
- 922,735 additional shares of common stock reserved for issuance under our
stock option plan; and
- 360,000 shares subject to outstanding warrants with a weighted average
exercise price of $0.55.
19
<PAGE> 22
DILUTION
Our pro forma net tangible book value on December 31, 1999 was $
million, or $ per share of common stock. Pro forma net tangible book value
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the pro forma number of shares of
common stock outstanding as of December 31, 1999, after giving effect to the
conversion of all outstanding shares of our preferred stock into 20,840,514
shares of common stock.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to our sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, our adjusted pro forma net tangible book value at December 31, 1999 would
have been $ million, or $ per share. This amount represents an
immediate increase in pro forma net tangible book value to our existing
stockholders of $ per share and an immediate dilution to new investors of
$ per share. 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 at December
31, 1999............................................... $
--------
Increase in pro forma net tangible book value per share
attributable to new investors..........................
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
If the underwriters exercise their over-allotment option in full, our
adjusted pro forma net tangible book value at December 31, 1999 would have been
$ million, or $ per share, representing an immediate increase in pro
forma net tangible book value to our existing stockholders of $ per share
and an immediate dilution to new investors of $ per share.
The following table summarizes, on a pro forma basis, as of December 31,
1999, after giving effect to the pro forma adjustments described above, the
differences between the number of shares of common stock purchased from us, the
aggregate cash consideration paid to us and the average price per share paid by
our existing stockholders and by new investors purchasing shares of common stock
in this offering. The calculation below is based on an assumed initial public
offering price of $ per share, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- --------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders........... % $ % $
New investors..........
---------- ------- -------- --------
Total................ % $ %
========== ======= ======== ========
</TABLE>
This discussion and table assume no exercise of any stock options
outstanding on December 31, 1999. On December 31, 1999, there were options
outstanding under our stock option plan to purchase a total of 6,494,450 shares
of common stock with a weighted average exercise price of $0.38 per share. To
the extent that any of these options are exercised, there will be further
dilution to new investors.
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to those
statements included in this prospectus. The consolidated balance sheet data at
December 31, 1998 and 1999 and the consolidated statements of operations data
for the years ended December 31, 1998 and 1999 have been derived from audited
consolidated financial statements included in this prospectus. We have not
presented any financial information prior to January 1, 1998, due to our limited
revenues, expenses and cash flow for the period from inception (March 7, 1997)
to December 31, 1997. See Notes to the audited consolidated financial statements
for additional information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $ 12,101 $ 771,109
Operating Expenses:
Network and product costs................................. 199,973 8,082,759
Selling and marketing..................................... 75,572 4,809,590
General and administrative................................ 426,250 6,961,370
Depreciation and amortization............................. 28,402 263,972
----------- ------------
Total operating expenses............................... 730,197 20,117,691
----------- ------------
Loss from Operations........................................ (718,096) (19,346,582)
Net interest income......................................... 467 541,714
----------- ------------
Net loss.................................................... $ (717,629) $(18,804,868)
=========== ============
Net loss per share:
Basic and diluted......................................... $ (0.07) $ (2.10)
=========== ============
Weighted average shares................................... 10,154,010 8,953,153
=========== ============
OTHER DATA:
EBITDA...................................................... $ (689,694) $(19,082,610)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $501,611 $ 12,901,707
Working capital............................................. (347,621) (7,294,784)
Total assets................................................ 671,246 26,506,367
Redeemable convertible preferred stock...................... -- 37,016,697
Total stockholders' deficit................................. (29,048) (18,882,097)
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion together with the consolidated
financial statements and related notes which appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those discussed below and elsewhere in this prospectus,
particularly under the heading "Risk Factors".
OVERVIEW
We provide broadband communications and Internet access services to small-
and medium-sized businesses in Tier II and Tier III markets. We initiated our
service in September 1998. As of December 31, 1999, we provided services in 25
markets, representing 117 cities. We intend to expand our services into a total
of 57 markets by the end of 2000.
When we enter a new market, we establish a local market presence, incurring
significant selling and marketing and general and administrative expenses. As
part of entering a new market, we lease equipment from Lucent and contract with
it or another third party to install the equipment into targeted central
offices. These operating leases and central office installation expenses are
expensed as network and product costs. Once we have deployed our network in a
market, additional expenditures primarily include leasing costs associated with
DSL line cards and customer premise equipment. In addition to the initial
expenditures required to enter a market, we fund each market's initial cash flow
deficit as we build our customer base.
We derive a majority of our revenues from Internet access and broadband
communications services, including real private networking (RPN) services. We
offer our services directly to customers at retail prices. We bill our customers
monthly for recurring charges based on the data transfer speeds selected by the
customer. We currently offer flat rate plans at prices that include our fully
bundled Internet services and our high-speed access and connectivity services on
contracts with terms generally ranging from one to three years. In addition to
monthly service fees, we bill customers for nonrecurring service activation,
equipment and installation charges. We may reduce or waive service activation,
equipment, or installation charges to encourage potential customers to enter
into multi-year contracts. We expect that prices for our services will decline
over time as a result of competition and changes in our product mix.
Our expenses are recognized as incurred and consist of the following
principal categories:
- network and product costs, which consist primarily of equipment costs,
access charges and technical salaries;
- selling and marketing expenses, which consist primarily of advertising
costs, compensation and related expenses;
- general and administrative expenses, which consist primarily of
corporate, management and administrative salaries and corporate office
expenses; and
- depreciation and amortization expenses, which include non-cash charges
related to property and equipment and collocation fees.
We have incurred operating losses, net losses and negative earnings before
interest, taxes, depreciation and amortization, or EBITDA. As of December 31,
1999 and December 31, 1998, we had total stockholders' deficit of $18.9 million
and $29,048, respectively. We intend to incur materially higher operating
expenses as we continue to rapidly deploy our network and introduce
22
<PAGE> 25
services in 2000. We expect to incur substantial operating losses, net losses
and negative EBITDA for the foreseeable future as we expand our operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
We recorded revenues of $771,109 for the year ended December 31, 1999 and
$12,101 for the year ended December 31, 1998. This increase is attributable to
growth in the number of customers resulting from our increased sales and
marketing efforts and the expansion of our networks in the Southeast. As of
December 31, 1999 and December 31, 1998, we had sold 1,224 and five lines,
respectively. We had installed 428 and five lines at December 31, 1999 and
December 31, 1998, respectively. Average recurring revenues per installed line
for 1999 were approximately $330 per month.
Network and Product Expenses
Network and product expenses were $8.1 million for the year ended December
31, 1999 and $199,973 for the year ended December 31, 1998. This increase is
attributable to the increased operational needs of our networks and increased
orders resulting from our sales and marketing efforts. Operating lease expenses
for network equipment was $2.9 million for 1999 and $128,896 for 1998.
Selling and Marketing Expenses
We recorded selling and marketing expenses of $4.8 million for the year
ended December 31, 1999 and $75,572 for the year ended December 31, 1998. This
increase is attributable primarily to increased advertising, selling
commissions, salaries and recruiting fees.
General and Administrative Expenses
General and administrative expenses increased to $7.0 million for the year
ended December 31, 1999 from $426,250 for the year ended December 31, 1998. This
increase is attributable to growth in the relocation and recruiting costs,
office rent, and related expenses.
Depreciation and Amortization
Depreciation and amortization expenses were $263,972 for the year ended
December 31, 1999 and $28,402 for the year ended December 31, 1998. The increase
was due to the increase in equipment and facilities placed in service throughout
the period and the build-out of our internal hardware and software systems.
Income Taxes
For the years ended December 31, 1999 and December 31, 1998, we recognized
no tax benefits with regards to operating losses due to the uncertainty of
future taxable income sufficient to utilize the losses during the periods.
23
<PAGE> 26
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth our unaudited consolidated statements of
operations data for the four fiscal quarters ended December 31, 1999. This
unaudited quarterly information has been prepared on the same basis as our
audited consolidated financial statements and, in the opinion of our management,
reflects all normal recurring adjustments that we consider necessary for a fair
presentation of the information for the periods presented. Operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $ 34,534 $ 101,677 $ 208,481 $ 426,417
Operating Expenses:
Network and product costs............... 245,683 704,976 1,840,033 5,292,067
Selling and marketing................... 85,166 238,415 905,480 3,580,529
General and administrative.............. 241,990 625,131 1,911,659 4,182,590
Depreciation and amortization........... 6,858 17,635 18,666 220,813
--------- ----------- ----------- ------------
Total operating expenses.............. 579,697 1,586,157 4,675,838 13,275,999
--------- ----------- ----------- ------------
Loss from Operations.................... (545,163) (1,484,480) (4,467,357) (12,849,582)
Net interest (expense) income........... (187) 40,197 185,439 316,265
--------- ----------- ----------- ------------
Net loss................................ $(545,350) $(1,444,283) $(4,281,918) $(12,533,317)
========= =========== =========== ============
</TABLE>
We have increased revenues in each of the last four quarters, reflecting
increases in the number of customers. Our network and product costs have
increased in every quarter, reflecting costs associated with customer growth and
the deployment of our network in existing and new markets. The expenses related
to network operating leases was $149,802, $378,020, $847,501 and $1,535,080 for
the first, second, third and fourth quarters of 1999, respectively. Our selling
and marketing expenses have increased in every quarter, reflecting sales and
marketing costs associated with the acquisition of customers, including sales
commissions. General and administrative expenses have increased in every quarter
and reflect costs associated with the development of regional and corporate
infrastructures. Depreciation and amortization has increased in each quarter,
primarily reflecting the purchase of equipment associated with the deployment of
our network. We have experienced increasing net losses on a quarterly basis as
we increased operating expenses and incurred network build-out costs. We expect
to sustain increasing quarterly losses for the foreseeable future.
Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Our quarterly revenue and
operating results may fluctuate as a result of a variety of factors, many of
which are outside our control, including:
- amount and timing of expenditures relating to the rollout of our network
and services;
- ability to obtain and the timing of necessary regulatory approvals;
- rate at which we are able to attract customers within our target markets
and our ability to retain these customers at sufficient aggregate revenue
levels;
- ability to deploy our network on a timely basis;
- availability of financing to continue our expansion;
- technical difficulties or network downtime;
24
<PAGE> 27
- availability of collocation space in traditional telephone companies'
central offices and timing of the installation of our equipment in those
spaces; and
- introduction of new services or technologies by our competitors and
resulting pressures on the pricing of our services.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had a stockholders' deficit of $18.9 million
and cash and cash equivalents of approximately $12.9 million. During 1999 and
1998, the net cash used in our operating activities was approximately $12.8
million and $496,606, respectively. This cash was used for a variety of
operating purposes, including personnel costs, consulting and legal expenses,
network operations and other administrative expenses. The net cash used in
investing activities during 1999 and 1998 was approximately $12.0 million and
$89,556, respectively, and primarily resulted from collocation costs and the
purchase of networking and other equipment. Net cash provided by financing
activities in 1999 and 1998 was approximately $37.3 million and $1.1 million,
respectively, and primarily resulted from the sale of common and preferred stock
and borrowings against the Lucent working capital line of credit.
The development and expansion of our business requires significant capital
expenditures. The principal capital expenditures incurred to enter each market
include the procurement, design and construction of collocation space. In
addition, we enter into significant operating lease obligations with Lucent to
acquire and install necessary telecommunications equipment. The number of
central offices that we expect to target in a given market will vary, as will
the average capital cost to enter a market. During 2000, we expect to enter into
additional operating leases for equipment with a market value of approximately
$50.0 million. In addition, we expect to make capital expenditures of
approximately $6.0 million during 2000.
In May 1999, we entered into an equipment lease facility with Ascend, which
later merged with Lucent, that provides up to $109.0 million of vendor financing
for equipment and network services provided by Lucent and other third party
vendor equipment utilized in our central office and multi-tenant building
installations. The Lucent facility is secured by substantially all of our
assets. The first tranche of $30.0 million is available to us through July 2001.
We may borrow up to $30.0 million under the equipment lease facility without
restriction. Borrowings in excess of $50.0 million require that we maintain a
minimum of $10.0 million of unrestricted cash. The lease line bears interest at
7.75% and allows for lease repayment over 36 months. As of December 31, 1999, we
had $92.8 million available under the Lucent equipment lease facility.
We believe that the net proceeds from this offering, together with our
existing cash balances, cash from preferred stock issuances and amounts
available under our credit facility, will be sufficient to fund our operating
losses, capital expenditures, lease payments and working capital requirements
into 2001. We expect our operating losses and capital expenditures to increase
substantially as we expand our network. We will require additional financing to
complete the deployment of our network. We may attempt to finance our future
capital needs through a combination of commercial bank borrowings, leasing,
vendor financing and the sale of equity or debt securities.
Our capital requirements will vary based upon the timing and the success of
our business plan and as a result of regulatory, technological and competitive
developments or if:
- demand for our services or our cash flow from operations varies from our
projections;
- our development plans or projections change or prove to be inaccurate;
25
<PAGE> 28
- we make any acquisitions; or
- we accelerate deployment of our network or otherwise alter the schedule
or targets of our business plan implementation.
We cannot assure you that additional capital will be available on terms
acceptable to us, or at all. While we would be able to sustain some level of
operations throughout all of 2000 without additional capital, we would be
required to significantly scale back our operations and delay the expansion of
our network. If we were unable to obtain financing on acceptable terms, our
business, financial condition and results of operations would be materially
adversely affected.
YEAR 2000 COMPLIANCE
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately distinguish 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished leading up to 2000 was
effective to prevent any problems. Computer experts have warned that there may
still be residual consequences of the change in centuries. Any such difficulties
could result in a decrease in sales of our services, an increase in allocation
of resources to address Year 2000 problems of our customers without additional
revenue commensurate with such dedication of resources, or an increase in
litigation costs relating to losses suffered by our customers due to Year 2000
problems.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for hedging and derivative activities. Among other things,
this statement requires that an entity recognize all derivative instruments on
the balance sheet as either an asset or liability, and to account for these
instruments at fair value. The adoption of SFAS 133 is not expected to have a
material impact on our results of operations or financial position.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Due to the nature of our short-term investments, we have concluded that we
have no material market risk exposure.
26
<PAGE> 29
BUSINESS
OVERVIEW
We are a leading provider of broadband communications and Internet services
to small- and medium-sized businesses in Tier II and Tier III markets. Our
Internet access services, which are packaged with Web hosting and e-mail, and
our high-speed real private networking services are provided primarily using DSC
technology. We have deployed a proprietary ATM and Internet protocol backbone
network that links all of our central offices and markets. This network allows
us to lower our Internet access costs, control speed and quality of our
broadband services and provides us with a superior platform for the delivery of
additional enhanced services.
We generally are the first competitive broadband communications provider to
small- and medium-sized businesses in the markets we enter, creating an early
mover advantage and allowing us to establish strong relationships with our
target customers and network professionals. In each of our markets, we have a
locally based, dedicated and experienced team that builds personalized customer
relationships through direct selling. We also ensure a high standard of service
quality by providing our own customer premise equipment installation and
customer care services. We collocate our equipment in central offices that serve
a high density of our target customers, which allows us to service more
potential customers within a market and to provide a more attractive service
offering to businesses with multiple locations or telecommuters.
Our network deployment began in the Southeast, and we are expanding into
other core markets nationwide in 2000. As of December 31, 1999, we were offering
our services in 25 markets, representing 117 cities. We expect to deploy our
network and roll out our services to a total of 57 markets by year-end 2000. As
of December 31, 1999, we had sold 1,224 high-speed access lines, of which 428
were in service. Of the 1,224 lines sold, 252 lines were sold as part of our
real private network service and 38 of these lines were in service. As of
December 31, 1999, we had collocated our network equipment in 84 central offices
and expect to be in more than 500 central office locations by the end of 2000.
When this stage of our network build-out is completed, our network will pass a
total of 1.2 million small- and medium-sized businesses.
We have received competitive carrier certification in 22 states and have
applied or will apply for competitive carrier certification in 25 additional
states. In addition, we have successfully negotiated interconnection agreements
with Ameritech, BellSouth, GTE, Southwestern Bell, Sprint and U S West. We are
currently pursuing interconnection agreements with other traditional telephone
companies.
We have entered into a strategic alliance with Lucent Technologies. Lucent
provides us up to $109.0 million in vendor financing for equipment purchases,
installs the equipment for us in central offices we target and provides us up to
$2.0 million in funding for cooperative advertising.
INDUSTRY BACKGROUND
We believe that a substantial business opportunity has been created by the
convergence of several factors:
- growth in demand for business data services;
- increased demand for high-speed Internet access by small- and
medium-sized businesses and broadband solutions;
- limitations of existing telecommunications networks to meet these
demands; and
27
<PAGE> 30
- emergence of low-cost, DSL-based solutions.
Growth in Data Communications. Data communications is the fastest growing
segment of the telecommunications industry. Forrester Research projects that the
total market for business Internet services will grow from $7.7 billion in 1999
to approximately $56.6 billion by 2003. To remain competitive, businesses
require high-speed connections to maintain complex Internet sites, to access
critical information and business applications, and to communicate more
efficiently with employees, customers and suppliers. Businesses also
increasingly use the Internet to market and sell their products and services.
Increased Demand for High-Speed Internet Access by Small- and Medium-Sized
Businesses. Small- and medium-sized businesses increasingly are using the
Internet to enable them to compete more effectively with larger organizations.
According to International Data Corporation, the number of DSL lines installed
for small- and medium-sized businesses is expected to increase from 269,800 in
1999 to approximately 3.0 million in 2003. Currently, many small- and
medium-sized businesses use the Internet to exchange e-mails and files with
customers, suppliers and other business partners and to disseminate and obtain
industry, product and market information. Many of these businesses also have
begun to use the Internet to market and sell their products and services, to
make purchases from suppliers and for other commerce-related activities. To take
full advantage of electronic commerce applications and the Internet, these
businesses would benefit from high-speed, secure and affordable digital data
communications connections.
Limitations of Existing Telecommunications Network. The growing demand for
high-speed Internet access and data communications services is straining the
capacity of the existing telecommunications network, particularly the local
access portion. The long distance portion of the network typically consists of
fiber-optic cables and other equipment that enable high-speed connections
between the offices of the traditional telephone companies from which local
telephone service is provided, known as central offices. In contrast, the local
access portion of the network, also known as the last mile, typically consists
of copper telephone wire that connects end users' locations to the nearest
central office. This last mile of copper telephone wire was not originally
designed for the transmission of high-speed digital signals, but has been
historically used for the transmission of low-speed, analog voice signals. Most
data transmission solutions to the last mile problem, including dial-up modems,
frame relay, ISDN and T1 lines, are relatively slow, hard to obtain or cost
prohibitive for small- and medium-sized businesses.
Emergence of DSL-based Solutions. As a result of technological
developments and regulatory changes, DSL technology has emerged as a
commercially available, cost-effective means of providing high-speed data
transmission using existing copper telephone lines. DSL technology enables the
transmission of packets of data over an existing telecommunications network,
including the last mile of copper wire, which allows multiple users to
simultaneously transmit and receive data over a single connection. DSL
equipment, when deployed at each end of a standard copper telephone line,
increases the data carrying capacity of the line to speeds to and from the user
of up to 2.3 megabits per second, depending on the distance between the user and
the central office and the quality of the copper telephone line.
Under the Telecommunications Act of 1996, traditional telephone companies
must lease telephone lines to competitive telecommunications companies below
retail prices and allow these competitive telecommunications companies to
collocate certain of their equipment in the traditional telephone companies'
central offices. Using existing copper lines allows DSL providers to avoid the
significant fixed costs necessary to deploy alternative networks. A significant
portion of the expense in providing DSL service is incurred only as customers
order the service. In addition, we anticipate that
28
<PAGE> 31
continued advances in DSL transmission speeds and equipment will further reduce
the cost of deploying a DSL-based network.
THE BLUESTAR SOLUTION
We provide our customers with broadband communications and "always on"
high-speed Internet access services. Key elements of our solution are:
Carrier-Class Network with ATM Backbone. We have deployed a dedicated,
high-speed local access network to provide broadband communications and Internet
access services using DSL and other high bandwidth technologies. We have
constructed our own proprietary ATM and Internet protocol network, which enables
our customers to communicate and send data without paying the high prices
charged by traditional telephone companies to lease private networks, dedicated
high-speed telephone lines or frame relay products. By deploying a dedicated
network rather than a shared network, we are able to manage the quality of our
services and the capacity of the network and provide more secure data
transmission. ATM technology enables us to provide faster Internet access by
avoiding multiple Internet protocol routers and gives us flexibility to offer a
wide range of enhanced service offerings. Our Internet protocol technology
allows us to connect with the public Internet to offer Internet access services.
Local Sales, Installation and Customer Service Presence. We offer
potential customers turnkey broadband communications and Internet access
solutions by providing them with a local point of contact for sales,
installation and customer service. Because of our local office presence, our
salespeople are familiar with the local business environment, know which
businesses are serviceable from the local phone company's central offices and
understand the data and Internet access needs of potential customers. This
knowledge allows them to target appropriate services to each business. Many of
our customers are small- to medium-sized businesses that do not have their own
information technology personnel. Consequently, our local salespeople often
employ a consultative approach with the customer and assess the customer's
technology requirements and capabilities in order to suggest an appropriate
service package. Throughout the life of the customer relationship, the
salesperson analyzes the customer's changing needs and suggests new products or
faster connection speeds, as appropriate.
During the installation process, we dedicate an account consultant to give
customers timely updates on the status of the customers' service installation.
Our own technicians install the equipment at customers' locations, allowing us
to ensure high quality and timely service. When installation is complete, we
provide customers with a local customer service contact should questions or
problems arise. We believe that having a local team that is knowledgeable about
our services and our customers' needs provides significant value to our
customers and builds customer loyalty.
Dense Market Coverage. As of December 31, 1999 we offered services in 25
markets and we anticipate providing service to 57 total markets in 2000. We
collocate our equipment in central offices that serve a high density of our
target customers, which allows us to service more potential customers and
cost-effectively compete with the local telephone company. All of our markets
and central offices are connected to one another by our ATM backbone network,
expanding both the capabilities and attractiveness of our FireLine RPN service.
Attractive Suite of Services. We offer a wide range of broadband
communications and Internet access services designed to meet the needs of both
small- and medium-sized businesses. We offer "always on" Internet access
primarily utilizing DSL technology with connectivity speeds ranging from 144
kilobits per second to 2.3 megabits per second. In addition to Internet access,
we offer real private networking services designed for businesses with several
locations within a market or within
29
<PAGE> 32
multiple markets, or for telecommuters within our service area. Our broad
product offering allows our sales force to upgrade customers as their needs
evolve. FireLine RPN enables customers to transmit data securely to multiple
locations on our network, including a corporate local area network. Unlike
virtual private network products provided by other telecommunications companies,
FireLine RPN bypasses the public Internet, eliminating the need for customers to
install expensive firewalls to protect transmitted data. We believe our FireLine
RPN service provides higher access speeds, and better security at a lower price
than a virtual private network.
BUSINESS STRATEGY
Our goal is to become a leading provider of broadband communications and
Internet services to small- and medium-sized businesses in the United States. In
order to achieve this goal, we:
Capitalize on Local Sales Presence. We will continue to capitalize on our
local sales presence and will seek to increase the number of customers who enter
into long-term, fixed rate contracts with us. We believe that the resulting
long-term, direct customer relationships give us the opportunity to better
understand our customers' needs and preferences, allowing us to sell more
services initially and to cross-sell existing and new service offerings in the
future. We believe that our direct customer relationships, our consultative
sales approach and our high-quality installation and customer service improve
customer loyalty and reduce customer turnover.
Focus on Small- and Medium-Sized Business Customers. An increasing number
of businesses are using Internet services and data communications in order to
grow and compete in the marketplace. We believe small- and medium-sized
businesses, and especially those businesses in Tier II and Tier III markets,
have been underserved by traditional telephone companies, forcing them to meet
their Internet and data communications needs with inefficient dial-up analog
modems or expensive ISDN or T1 lines. We have designed our broadband
communications and Internet services to offer small- and medium-sized business
customers cost-effective solutions at speeds better than or competitive with
existing connectivity solutions.
Develop New Core Markets. We seek to be the first DSL service provider in
select Tier II and Tier III markets throughout the United States. We intend to
expand from the Southeast to adjacent states beginning in the Midwest and
Southwest, with the goal of creating a nationwide footprint. When entering a new
market, we use the same strategic model we have employed during our initial
build-out. Through our centralized network management and standardized equipment
configuration and installation procedure, we believe we can deploy our network
in new core markets quickly and cost effectively.
Continue to Penetrate Existing Markets. We will continue to install DSL
equipment in more central offices within our existing markets. Increasing the
density of our market coverage will allow us to serve more potential customers
within a market using our existing local sales team and to increase the
attractiveness of our real private network service by enabling us to serve more
sites of multi-location businesses. Our installed network and local presence in
our existing markets allow us to increase our customer base at little
incremental cost, thereby improving our profitability. In addition, as we
continue to penetrate our existing markets and reach a critical mass of
customers, we believe we will be able to retain customers and compete more
effectively with late market entrants because of our strong customer
relationships.
Leverage Network Architecture. We have designed our network to
cost-effectively deliver our services to our customers and to expand with our
business. Because DSL technology uses existing copper telephone lines,
implementing a DSL-based local access network generally requires a lower initial
capital investment than that needed for alternative technologies. Our backbone
network utilizes
30
<PAGE> 33
both Internet protocol and ATM-based technologies. This architecture allows us
to offer a broader suite of services with a shorter product development cycle
than typical for a pure Internet protocol network. Additionally, our ATM network
allows us to offer a more cost-effective and secure real private networking
service as well as a guaranteed quality of service.
Offer Enhanced Services. We intend to offer additional services in order
to attract and retain customers. To complement our focus on small- and
medium-sized businesses and maximize the growth of business-to-business
applications, we intend to offer new services, such as Web hosting with enhanced
caching, and facilitate the delivery of software and other applications by
application service providers. We also intend to offer voice over DSL service to
our customers as well as provide them with four-digit dialing from remote
locations as a cost-efficient alternative to the local telephone company.
Invest in Brand Building. We believe that building a brand such as
"BlueStar" or "FireLine" attracts new customers and enhances our relationships
with existing customers. We intend to build our brands through a variety of
strategies, including direct marketing, focused advertising campaigns, public
relations campaigns and customer marketing initiatives. In addition, Lucent has
granted us the right to use its "red circle" logo and trademarks on our
marketing material. We believe our co-marketing agreement with Lucent provides
us with additional credibility as we deploy new technologies and allows us to
identify BlueStar with an established company.
SERVICES
We offer our customers several solutions for their broadband communications
and Internet needs. Our primary service is high-speed "always-on" Internet
access, utilizing DSL technology and, for customers located outside the range
for DSL, utilizing a unbundled network element T1, or UNE T1, connection. We
provide the customer a turnkey solution, installing all hardware and software
necessary to establish and maintain a digital connection. As part of our high
speed Internet access bundle, we offer Web hosting and e-mail accounts. We also
provide real private networking services.
High-Speed Internet Access Bundle. When customers contract for our
Internet access service, they receive a high-speed, "always on" Internet
connection, typically using our DSL connectivity. They also receive a Web
hosting service, Internet domain name service, network address translation and a
fixed number of e-mail accounts. The number of e-mail accounts a customer
receives depends upon the connection speed ordered, with more e-mail accounts
packaged with faster connection speeds. Customers may purchase additional e-mail
accounts for an additional charge. In conjunction with our e-mail service, we
also provide mail bagging services, which stores e-mails in the event a
customer's network is unable to receive e-mail and then forwards the customer's
e-mails once the network is functioning.
DSL Connectivity. Offered under the FireLine DSL brand, our DSL
connectivity ranges in speed from 144 kilobits per second to 2.3 megabits per
second. We utilize Lucent's symmetrical DSL, or SDSL, equipment to provide a
wide range of connectivity speeds and data transfer enhancements. SDSL allows
the customer to send and receive data at the same transmission speed. Our SDSL
equipment allows customers to achieve up to 2.3 megabits per second speeds both
upstream and downstream, depending on the quality of the copper line.
31
<PAGE> 34
The following chart compares the performance and range for our DSL
connectivity services as of December 31, 1999. We provide service at higher
connection speeds at the request of a customer.
<TABLE>
<CAPTION>
DISTANCE
SPEED TO AND FROM CUSTOMER RANGE (FEET)*
- -------------------------- -------------
<S> <C>
144 Kbps................................................... 23,000
256 Kbps................................................... 18,000
384 Kbps................................................... 18,000
512 Kbps................................................... 15,000
768 Kbps................................................... 13,500
1.0 Mbps................................................... 12,000
1.5 Mbps................................................... 12,000
2.3 Mbps................................................... 12,000
</TABLE>
- -------------------------
* Estimated maximum distance from the customer to the central office.
UNE T1 Connectivity. In the event a customer is beyond the range of a DSL
connection, we provide high-speed connectivity by leasing a UNE T1 from the
local telephone company. When providing high-speed connectivity using a UNE T1,
there is no distance limitation, provided we have collocated our
telecommunications equipment in the central office serving that particular
customer.
The following chart sets forth the products available using a UNE T1
connection as of December 31, 1999.
<TABLE>
<CAPTION>
DISTANCE
SPEED TO AND FROM CUSTOMER RANGE
- -------------------------- ---------
<S> <C>
384 Kbps.................................................... Unlimited
768 Kbps.................................................... Unlimited
1.0 Mbps.................................................... Unlimited
1.5 Mbps.................................................... Unlimited
</TABLE>
Real Private Networking Services. We offer a host of private networking
services under the brand "FireLine RPN." Our real private network service
permits a customer to transmit data securely between fixed locations on our
network without the data ever reaching or traveling over the public Internet.
Our real private network products offer a solution to the networking needs of
customers with multiple locations within our service area. Using our real
private network service, customers can transport their data across our dedicated
ATM backbone without acquiring expensive firewalls or building their own
expensive private network. Unlike frame relay networks, FireLine RPN provides
guaranteed and less expensive bandwidth between a remote office and the home or
origination point of presence. Using FireLine RPN, a customer is able to connect
various remote offices to one another through a DSL line without suffering any
degradation in transmission speed or quality due to the amount of traffic
reaching the originating point of presence.
32
<PAGE> 35
The following chart sets forth the products available for FireLine RPN as
of December 31, 1999.
<TABLE>
<CAPTION>
REMOTE BANDWIDTH CIRCUIT TYPE
- ---------------- ---------------
<S> <C>
144 Kbps.......................................... SDSL
256 Kbps.......................................... SDSL
384 Kpbs.......................................... SDSL and UNE T1
768 Kbps.......................................... SDSL and UNE T1
1.5 Mbps.......................................... SDSL and UNE T1
2.3 Mbps.......................................... SDSL
3.0 Mbps.......................................... 2x UNE T1
4.5 Mbps.......................................... 3x UNE T1
4.6 Mbps.......................................... 2x SDSL
6.0 Mbps.......................................... 4x UNE T1
6.9 Mbps.......................................... 3x SDSL
9.2 Mbps.......................................... 4x SDSL
</TABLE>
FUTURE SERVICES
We believe that there is a great demand for enhanced services from small-
and medium-sized businesses. We are currently developing a suite of applications
services intended for these customers, including managed firewall service,
on-line backup, enhanced Web hosting, video streaming and conferencing and
enhanced voice over DSL services. We believe that we will have an advantage in
selling and delivering enhanced solutions due to our highly trained direct sales
force and technicians.
We also intend to expand our DSL connectivity service offerings. We are
currently developing an ISDN-based DSL offering that will allow us to provide
connectivity service at 128 kilobits per second to customers that are otherwise
not serviceable due to distance from the central office. We are also developing
a line-shared access offering that will allow us to provide connectivity to
certain customers at faster speeds and with less cost.
SALES AND MARKETING
Direct Sales. We generally market our services to businesses through our
direct sales force. As of December 31, 1999, we employed 113 salespeople. Our
target customer is a small- to medium-sized business with multiple end users
and/or multiple locations. We have segmented our current markets into six
geographic regions, and we appoint a regional vice president to manage each
region. We employ a general manager and a sales team in each of the markets in
which we offer our services. We attempt to hire between four and ten
knowledgeable salespeople in each market, depending on the number of local
businesses, the number of central offices in which we collocate our equipment
and the population of a particular market. The sales team is supported by
technical personnel who oversee the installation of the customer premises
equipment and provide ongoing customer support.
Salespeople receive salaries supplemented by sales commissions. We also
offer incentives to our salespeople to encourage sales of multi-year contracts.
We train each of our salespeople and provide them with sales leads, printed
marketing materials, advertising, branding, promotions and press announcements.
We also engage telemarketers and networking professionals to provide our
salespeople with additional leads.
During the sales cycle, our sales team educates the customer on the
advantages of having Internet-based business operations or data transfer through
DSL technology and develops a working
33
<PAGE> 36
relationship with the customer. As part of our consultative sales approach, we
present marketing information to customers using an interactive sales package.
Indirect Sales Channels. We are utilizing select authorized agents to sell
FireLine DSL and FireLine RPN. These agents have significant contacts, customers
and reputations in the networking communities. We compensate our agents
comparably with our direct sales force. In the markets where we employ agents,
we also intend to employ agent managers to ensure the agents have the resources,
training and information necessary to optimize their sales of our services. Any
customers identified by our sales agents become BlueStar customers and sign
contracts with us.
Marketing. We have created and implemented a localized marketing strategy.
Our brand identification is supported in new markets through the use of external
media involving grass roots public relations efforts, print advertising, outdoor
advertising and radio campaigns to deliver a strategic marketing message to our
target customer. We employ aggressive strategies, including targeted direct mail
and regular promotions as well as local event sponsorship to maximize brand
awareness and sales penetration on a market-by-market basis.
We have a co-marketing relationship with Lucent that permits the use of its
"red circle" logo and trademarks. We believe that the use of the Lucent logo and
trademark provides us with additional credibility as we deploy a new technology
and allows us to identify with an established company.
CUSTOMERS
We generally offer our services to small- and medium-sized businesses. As
of December 31, 1999, we provided broadband communications and Internet access
service to 406 customers with 665 customers awaiting installation. Approximately
60% of our customers had signed one year contracts and approximately 40% had
signed multi-year contracts.
Businesses with a small number of employees accessing the Internet or
transferring limited amounts of data have generally entered into contracts for
our 384 kilobits per second service. Small businesses are migrating away from
ISDN lines, which have proven to be more costly on a per kilobit basis.
Medium-sized businesses often contract for our 768 kilobits per second
connection to facilitate data communications, Web site hosting or greater
employee productivity and efficiency. Many of these customers have traditionally
leased a costly fractional T1 from the local telephone company and incurred
additional costs from their Internet service provider.
We offer a full service solution for the configuration, provisioning, and
installation of local access connections at the customer's location. Customers
pay a one-time installation charge. The installation charge does not vary
according to the number of end-users or amount of usage. The monthly fee
includes charges for line, Internet service, e-mail services and any
administrative fees associated with registration of Web sites and e-mail
addresses.
CUSTOMER SUPPORT
Installation. We locally manage the installation of our services for each
customer. We order connections and loops, install equipment on the customer
premises, contract for service, monitor the network, make repairs and provide
customer support. Once a sale has been made, our technical personnel visit the
customer's location and, in conjunction with the customer, devise a strategy for
installing a DSL line.
Account Consultants. In each region in which we have operations, we have
hired account consultants to communicate with customers from the time the sales
contract is signed to installation
34
<PAGE> 37
of the DSL modem. We believe that we build stronger customer relationships by
remaining in contact with our customers and providing them with up-to-date
information regarding the status of their installation. Account consultants
allow our direct sales force to spend more time contacting prospects and
generating leads for additional sales.
Operational Support System. We have implemented an operational support
system that tracks each step in the sales, provisioning and installation
process. This system provides our personnel with up-to-date information
regarding the status of each customer's installation. The system also provides
specific dates by which steps in the installation process must be completed in
order to meet a target installation date.
Network Operations Center. Once a customer is installed and is
functioning, our network operations center in Nashville, Tennessee monitors the
network 24 hours a day, seven days a week. We monitor our network from the
network operations center to detect and, when feasible, remotely correct a
customer's maintenance problems.
Customer Service Department. In the event we are unable to correct a
customer's network problems prior to the customer contacting the customer
service center, our customer service representatives communicate customer
maintenance problems to our engineers. We provide customers a toll-free
telephone number for our customer service department in the event customers have
questions regarding their bill. We currently are upgrading our Web site,
www.bluestar.net, so that it can process customer service inquiries.
NETWORK ARCHITECTURE AND FEATURES
Our network contains the following key design features:
Network Reliability. Our core network is designed to be redundant and
fault tolerant. We can monitor our entire network from our network operations
center. We provide our customers with service level agreements that guarantee
specific levels of network performance. We have found that by offering service
level agreements, we are better able to convince businesses to move their
mission-critical applications onto our network. Generally, our service level
agreements require us to credit a customer's invoice upon a service outage
caused by us.
Scalable Support Systems. We use industry standard, off-the-shelf software
to support preordering, ordering, provisioning, billing, network monitoring and
trouble management. We have implemented these systems using a distributed
client-server systems architecture that operates using a single, integrated
database. This approach allows us to grow customer support and network
management capabilities as customer demand increases by giving our personnel
faster, more accurate access to a fully integrated business information system.
Network Security. Connection to the public Internet poses security risks
for business customers. We are able to use our ATM network to offer our
customers private connections that never traverse the public Internet, thereby
providing a high level of security.
NETWORK COMPONENTS
Our network is comprised of local access copper lines leased from local
telephone companies, intra-city fiber leased from local telephone companies or
competitive telecommunications providers and long-distance backbone fiber leased
from long distance carriers. Our network is designed to switch and route traffic
within each metropolitan area, keeping local traffic local and only sending
non-local traffic over the inter-city network, thereby improving overall network
efficiency, increasing reliability and reducing costs. The primary components of
our network are customer premise
35
<PAGE> 38
equipment, local access lines, central office collocations, regional switching
centers, high-speed intra-city networks, backbone trunk facilities and our
network operations center.
[Chart describes key components of the Company's network architecture.]
Customer Premise Equipment. As part of our turnkey services, we provide
customer premise equipment, which is generally a DSL modem or router. We
configure and install the equipment for the customer's computer, local area
network or enterprise router and provide any required on-site wiring needed to
connect the equipment to the telephone line leased from the local telephone
company.
Local Access Lines. Our local access lines are usually copper lines leased
from local telephone companies pursuant to an interconnection agreement. The
copper line connects customer premise equipment to our equipment collocated in a
central office.
Central Office Collocations. We secure collocation space within central
offices of traditional telephone companies. In our collocation space we install
our DSL multiplexing equipment, which we then connect to our DSL-qualified
copper lines. Our collocation space is designed to be to the same standards as
local telephone companies' own central office space.
High-Speed Intra-City Network. In each of our target markets, we deploy a
dedicated intra-city network. This intra-city network carries data from our
central office collocations to our regional switching center, and to our other
central office collocations.
Regional Switching Centers. A regional switching center is a physical
point of presence within a metropolitan area where local access traffic is
aggregated from our central office collocations over our high-speed intra-city
network. Although we generally expect to have one regional switching center in
each of our target markets, we may have two or more in larger metropolitan
areas. Our regional switching centers house our ATM and frame relay switches in
addition to our Internet protocol routers. We also place applications servers in
some of the regional switching centers to support network-enabled features and
applications. We design our regional switching centers with battery backup
power, redundant equipment and active network monitoring.
Backbone Trunk Facilities. Our backbone trunk facilities interconnect our
regional switching centers. Currently, we lease private line circuits from AT&T
and MCI WorldCom and use the ATM capabilities of our regional switching center
to carry network traffic to the proper destination.
Internet Peering Points. We interconnect to other Internet service
providers to access the public Internet at Internet peering points. We currently
have five Internet peering points and expect to add more as we expand into other
markets.
Network Operations Center. We manage our entire network from our network
operations center in Nashville, Tennessee. From the network operations center,
we monitor our network 24 hours a day, seven days a week and resolve most
network and customer service faults.
INTERCONNECTION AGREEMENTS
Interconnection agreements with traditional telephone companies are
critical to our business. Interconnection agreements govern our relationship
with the traditional telephone company. Interconnection agreements control:
- the price paid to lease and the access we have to the telephone company's
copper lines or loops;
36
<PAGE> 39
- the special conditioning the telephone company provides on certain of
these lines to enable the transmission of DSL signals;
- the price and terms for collocation of our equipment in the telephone
company's central offices and for transport facilities;
- the ability we have to access conduits and other rights of way the
telephone company has to construct in its own network facilities; and
- the operational support systems and interfaces that we can use to place
orders and report and monitor the telephone company's response to our
requests.
We have signed interconnection agreements with Ameritech, BellSouth, GTE,
Southwestern Bell, Sprint and U S West. These interconnection agreements
generally have terms of one to three years. We will need to negotiate
interconnection agreements with other telephone companies as we extend our
network into other geographic regions.
COMPETITION
The market for broadband communications and Internet access services for
small- and medium-sized businesses is extremely competitive. We face competition
on price and quality of service from traditional and new communications
companies with longer operating histories, more established customer
relationships, greater financial, technical and marketing resources, larger
customer bases and greater brand or name recognition than we have. These
competitors include:
- traditional telephone companies;
- long distance carriers;
- cable modem service providers;
- wireless and satellite data service providers;
- internet service providers; and
- competitive telecommunications providers.
Furthermore, the numerous companies that may seek to enter our markets may
expose us to severe price competition for our services. Our competitors may also
be able to respond more quickly to technological developments and changes in
customers' needs. Any of these factors may limit our ability to compete
effectively.
GOVERNMENT REGULATION
The following summary of regulatory developments and legislation describes
material telecommunications regulations and legislation directly affecting our
industry in general.
The facilities and services that we obtain from BellSouth and other local
telephone companies in order to provide FireLine DSL and FireLine RPN are
regulated extensively by the FCC and state telecommunications regulatory
agencies. To a lesser extent, the FCC and state telecommunications regulators
exercise direct regulatory control over the terms under which we provide our
services to the public. Municipalities also regulate limited aspects of our
telecommunications business by imposing zoning requirements, permits or
right-of-way procedures or fees, among other regulations. The FCC and state
regulatory agencies generally have the authority to condition, modify, cancel,
terminate or
37
<PAGE> 40
revoke operating authority for failure to comply with applicable laws, or rules,
regulations or policies. Fines or other penalties also may be imposed for such
violations.
We cannot assure you that regulators or third parties would not raise
issues regarding our compliance or non-compliance with applicable laws and
regulations. We believe that we operate our business in compliance with
applicable laws and regulations of the various jurisdictions in which we operate
and that we possess the approvals necessary to conduct our current operations.
Federal Regulation. The Telecommunications Act of 1996 (the
"Telecommunications Act") departs significantly from prior legislation in the
telecommunications industry by establishing competition as a national policy in
all telecommunications markets. The Telecommunications Act removes many state
regulatory barriers to competition in telecommunications markets dominated by
traditional telephone companies and directs the FCC to preempt, after notice and
an opportunity to comment, state and local laws restricting competition in those
markets. Among other things, the Telecommunications Act also greatly expands the
interconnection requirements applicable to traditional telephone companies. It
requires the traditional telephone companies to:
- provide interconnection at any technically feasible point;
- provide collocation, which allows competitive telecommunications
companies to install and maintain their own network termination equipment
in telephone company central offices;
- unbundle and provide access to components of their service networks to
other providers of telecommunications services;
- establish "wholesale" rates for the services they offer at retail prices
to promote resale by competitive telecommunications companies; and
- provide nondiscriminatory access to telephone poles, ducts, conduits and
rights of way.
Traditional telephone companies also are required by the Telecommunications
Act to negotiate interconnection agreements in good faith with carriers
requesting any or all of the above arrangements. If a requesting carrier cannot
reach an agreement within the prescribed time, either carrier may request
binding arbitration by the state telecommunications regulatory agency.
The FCC and state telecommunications regulators also are instructed by the
Telecommunications Act to fulfill certain duties to implement the regulatory
policy changes prescribed by the Telecommunications Act. The outcome of various
ongoing proceedings to carry out these responsibilities, or judicial appeals of
these proceedings, could materially affect our business, operating results and
financial condition.
In July 1997, the United States Court of Appeals for the Eighth Circuit
overruled some of the rules initially adopted by the FCC to implement the
Telecommunications Act, including rules:
- requiring traditional telephone companies to combine network elements and
make them available for use by competitive telecommunication companies;
- providing the detailed standard that state telecommunications regulators
must use in prescribing the price that traditional telephone companies
charge for collocation and for the copper telephone lines and other
network elements that competitive telecommunications companies must
obtain from traditional telephone companies in order to provide service;
and
- giving competitive telecommunications companies the right to
"pick-and-choose" interconnection provisions by requiring that a
traditional telephone company enter into interconnection agreements with
competitive telecommunications companies that combine
38
<PAGE> 41
provisions from a variety of interconnection agreements between that
traditional telephone company and other competitive telecommunications
companies.
The FCC and others appealed this decision to the U.S. Supreme Court. In
January 1999, the U.S. Supreme Court reversed much of the Eighth Circuit's
decision, finding that the FCC has broad authority to interpret the
Telecommunications Act and issue rules for its implementation, including
authority to establish the methodology that state telecommunications regulators
must use in setting the price that traditional telephone companies charge
competitive telecommunications companies for collocation, copper telephone lines
and other network elements. The Supreme Court also reversed the Eighth Circuit's
holding invalidating the FCC's "pick-and-choose" rule. However, the Supreme
Court found that the FCC was not adequately justified under the
Telecommunications Act in defining the individual network elements traditional
telephone companies must make available to competitive telecommunications
companies, and required the FCC to reconsider its delineation of these elements.
It sent the matter back to the FCC with instructions to consider further the
question of which parts of a traditional telephone company's network must be
provided to competitors. The FCC released an order on November 5, 1999 that
sought to follow the Supreme Court's instructions in delineating the particular
network elements that traditional telephone companies must make available to
competitors. The FCC's November decision reaffirms its earlier holding that
traditional telephone companies must make available the particular inputs that
we need in order to provide our services (including, but not limited to, copper
telephone lines, transmission facilities between local telephone company central
offices and various back-office support services). In addition, the FCC's
November order requires, upon the request of competitive telecommunications
companies like us, that traditional telephone companies provide competitive
carriers with certain other inputs (such as "subloops" and, in limited cases,
packet switching) that may prove useful as we expand our services into new
geographic areas, especially into more suburban areas.
The Supreme Court's determination in its January 1999 order that the FCC,
rather than state telecommunications regulators, has jurisdiction to determine
pricing methodology also could be helpful to us since the FCC has adopted a
pricing standard that appears to be more beneficial to competitive
telecommunications companies in some respects than the pricing standards that
some state telecommunications regulators have employed. However, it remains
unclear whether the particular pricing methodology prescribed by the FCC will be
fully implemented because some parties have challenged the lawfulness of that
methodology in the U.S. Court of Appeals for the Eighth Circuit. That litigation
is still pending.
In an order released March 31, 1999, the FCC adopted new regulations that
are designed to clarify the obligations of a traditional telephone company in
providing space inside its central offices to competitors like us so that they
can access the telephone company's copper telephone lines and connect those
lines to the competitor's electronic equipment located inside that telephone
company's central office. Another rule adopted in that order is intended to help
ensure that the customers of companies who provide services like our Internet
access services do not receive harmful interference from other users of the
traditional telephone company network on which the service is provided.
An FCC order released on December 9, 1999 is designed to make it easier for
companies like ours to market high-speed data services like ours to residential
customers. Under this "line-sharing" order, traditional telephone companies are
required to let a competitor use the same copper telephone line for providing
the customer with data service that the telephone company uses for providing the
same customer with local telephone service. At present, the traditional
telephone companies provide residential customers with local phone service and
high-speed Internet access service over a single phone line, but the traditional
telephone companies require competitors like us to lease a separate phone line
to provide high-speed Internet access to any residential customer when that
customer obtains local phone service from the traditional telephone company. The
FCC's December 9, 1999
39
<PAGE> 42
order is designed to make it easier for companies like ours to compete with the
traditional telephone companies in the residential high-speed Internet access
market by permitting competitors to reduce significantly their costs to serve
this market. However, it is not yet clear that the FCC's order will achieve its
intended objective since it will take several months before the traditional
telephone companies put in place the policies and procedures necessary to
implement the order. It also is possible that the order will be appealed to the
courts on grounds that the FCC's new line sharing requirements are unlawful. If
appealed, we have no way of determining whether the FCC's requirements will be
affirmed.
The FCC made another potentially favorable ruling for competitive carriers
in another recent case. That case involved the question of whether a
telecommunications service like our Fireline DSL and FireLine RPN that provide
high-speed dedicated connection to the Internet is an interstate service or an
intrastate service. An interstate service must be provided subject to FCC
regulatory controls, whereas an intrastate service must be provided subject to
regulatory controls of the telecommunications regulatory agency of the state
where the service is offered. In its decision, the FCC held that such services
are predominantly interstate from a jurisdictional standpoint and therefore must
be provided on terms and conditions set by the FCC rather than state
telecommunications regulators. This ruling is potentially advantageous to us
because it could reduce the number of telecommunications regulatory agencies
that control the terms under which we can provide our primary services. It also
is potentially advantageous because FCC regulatory controls in many respects are
less burdensome than state regulatory controls. For example, the
Telecommunications Act authorizes the FCC to forbear from regulating the terms
under which carriers classified as "non-dominant" provide interstate
telecommunications service. The FCC has exercised its forbearance authority by
issuing rulings that exempt non-dominant domestic carriers like us from
obtaining a certificate from the FCC prior to providing any interstate service
or from filing a tariff setting forth the terms under which they provide any
interstate access service. Because we believe that our services constitute
predominantly interstate service, we believe that we may not need a certificate
from state telecommunications regulatory agencies to provide them. However, we
have generally filed tariffs with state authorities for our high-speed Internet
services where requested by those agencies.
Many of these FCC decisions have been appealed. We do not know how the
courts will decide these appeals, but any decision that invalidates one or more
of these rules could adversely affect our Internet access business.
On May 8, 1997, in compliance with the requirements of the
Telecommunications Act, the FCC released an order establishing a new federal
universal service support fund, which provides support to carriers that provide
service to customers in high-cost or low-income areas and to companies that
provide telecommunications services for schools and libraries and to rural
health care providers. We are required to contribute to the universal service
fund and also may be required to contribute to state universal service funds.
The new universal service rules are administered jointly by the FCC, the fund
administrator, and state regulatory authorities, many of which are still in the
process of establishing their administrative rules. We cannot determine the net
revenue effect of these regulations at this time.
On November 2, 1999, the FCC determined that a statute requiring that
traditional local telephone companies offer their retail services at a wholesale
price to competitors like us does not apply when these traditional telephone
companies provide a discounted DSL service directed to Internet service
providers. In that case, while competitors may purchase the traditional
telephone companies' Internet service provider-directed DSL offering on the same
terms as the Internet service providers, the FCC ruled that competitors have no
legal right to a wholesale discount off the price paid by Internet service
providers. This ruling could adversely affect us if it gives Internet service
40
<PAGE> 43
providers an economic incentive to meet all of their DSL needs by subscribing to
the traditional telephone companies' Internet service provider-directed
discounted DSL offerings rather than by subscribing to DSL services offered by
competitors like us.
Various traditional telephone companies have requested that the FCC
substantially deregulate the retail price it charges for various types of
telecommunications services, including high-speed data services. The FCC
recently issued a decision in response that establishes a procedure by which
traditional telephone companies may apply for certain pricing flexibility. We
cannot yet determine the precise extent to which traditional telephone companies
will qualify for this pricing flexibility. The ultimate impact of the FCC's
order also is uncertain because the order has been appealed to the U.S. Court of
Appeals. If the FCC were to substantially eliminate price regulation of the
high-speed data services that traditional telephone companies provide in
competition with us, our business could be adversely affected.
The FCC also has proposed to permit traditional telephone companies to
provide advanced services like DSL through separate affiliates or subsidiaries
on a deregulated basis. This proposal could permit the separate affiliates to
provide advanced services free of the requirements relating to interconnection,
unbundling, resale and collocation imposed by the Telecommunications Act. Bills
have been introduced in Congress that would grant regional Bell operating
companies regulatory relief to provide data services in areas where they are
currently restricted from doing so.
State Regulation. While it is clear from the January 1999 Supreme Court
decision that the FCC has broad authority to implement provisions in the
Telecommunications Act that are intended to open all telecommunications markets
to competition, state telecommunications regulators also have substantial
authority in this area. For example, although the Supreme Court's decision
validated the FCC's jurisdiction to prescribe the methodology traditional
telephone companies must use in setting the price of copper telephone wires and
other network elements, the FCC has exercised that jurisdiction by adopting a
pricing standard and has given state regulators substantial authority to apply
that standard in order to determine actual prices. Many states have set only
temporary prices for some network elements that are critical to the provision of
DSL services because they have not yet completed the regulatory proceedings
necessary to determine permanent prices. Other states have begun proceedings to
set new permanent prices based on more current data. The results of these
proceedings will determine the price we pay for, and whether it is economically
attractive for us to use, these network elements and services.
The Telecommunications Act also gives state telecommunications regulators
broad authority to approve or reject interconnection agreements that competitive
telecommunications companies enter into with traditional telephone companies and
broad authority to resolve disputes that arise under these interconnection
agreements. Under the Telecommunications Act, if we request, traditional
telephone companies have a statutory duty to negotiate in good faith with us for
agreements for interconnection and access to unbundled network elements. A
separate agreement is signed for each of the states in which we operate. During
these negotiations either the traditional telephone company or we may submit
disputes to the state regulatory commissions for mediation and, after the
expiration of the statutory negotiation period provided in the
Telecommunications Act, we may submit outstanding disputes to the states for
arbitration. The Telecommunications Act also allows state regulators to
supplement FCC regulations as long as the state regulations are not inconsistent
with FCC requirements.
In addition, FireLine DSL and FireLine RPN may, as to some customers, be
classified as intrastate service subject to state regulation. All of the states
where we operate, or will operate, require some degree of state regulatory
commission approval to provide certain intrastate services. We have obtained
non-expiring state authorizations to provide intrastate services from the state
regulatory
41
<PAGE> 44
agency in all states where we currently provide our service. We also have
obtained non-expiring certificates to provide intrastate service in many of the
states where we may provide our services in the future. In most states,
intrastate tariffs are also required for various intrastate services, although
non-dominant carriers like us are not typically subject to price or rate of
return regulation for tariffed intrastate services. In some states, pursuant to
state statutes and regulations, regulated telecommunications carriers such as
our company may be required to obtain prior approval for certain actions, such
as issuing stock, incurring indebtedness, or transferring control of the company
holding a state certification. We may be required to obtain approvals in
connection with this offering. Actions by state telecommunications regulatory
agencies could cause us to incur substantial legal and administrative expenses.
It is possible that laws and regulations could be adopted that address other
matters that affect our business. We are unable to predict what laws or
regulations may be adopted in the future, to what extent existing laws and
regulations may be found applicable to our business, or the impact such new or
existing laws or regulations may have on our business. In addition, laws or
regulations could be adopted in the future that may decrease the growth and
expansion of the Internet's use, thereby decreasing demand for our services.
Local Government Regulation. In certain instances, we may be required to
obtain various permits and authorizations, including the payment of certain fees
to certain local municipalities, from municipalities in which we operate our own
facilities. The extent to which such actions by local governments pose barriers
to entry for competitive telecommunications companies that may be preempted by
the FCC is the subject of litigation. Although our network consists primarily of
unbundled network elements of the traditional telephone companies, in certain
instances we may deploy our own facilities and therefore may need to obtain
certain municipal permits or other authorizations. The actions of municipal
governments in imposing conditions on the grant of permits or other
authorizations or their failure to act in granting such permits or other
authorizations could have a material adverse effect on our business, operating
results and financial condition.
INTELLECTUAL PROPERTY
We regard some aspects of our products and services as proprietary and
attempt to protect them with copyrights, trademarks, trade secret laws,
restrictions on disclosure and other methods. These methods may not be
sufficient to protect our technology. 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.
Further, effective patent, 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 proprietary information. Steps taken by us may not 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. In addition, we may be sued by others with respect
to infringement of their intellectual property rights.
EMPLOYEES
As of December 31, 1999, we employed 315 employees. We believe that our
relationship with our employees is satisfactory. We believe that our future
success will depend in part on our continued ability to attract, hire and retain
qualified personnel. None of our employees are represented by a
42
<PAGE> 45
labor union or are the subject of a collective bargaining agreement. We have
never experienced a work stoppage.
PROPERTIES
We currently sublease approximately 13,247 square feet in Nashville,
Tennessee, which serves as our corporate headquarters. We also lease
approximately 15,000 square feet in Nashville, Tennessee, which serves as our
network operations center and customer service center. We have executed a lease
for approximately 46,000 square feet in a facility located in Franklin,
Tennessee, which we expect to be completed in April 2000. We expect to relocate
all of our corporate, network operations, customer service and marketing
departments to this new facility in May 2000. We lease from 2,500 to 8,000
square feet for our sales offices in almost every market in which we employ our
direct sales force.
LEGAL PROCEEDINGS
We are subject to routine legal and administrative proceedings which arise
in the ordinary course of our business, none of which will have a material
adverse effect.
43
<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of January 31, 1999, the names, ages and
positions of our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert E. Dupuis......................... 45 President, Chief Executive Officer and
Chairman of the Board
Richard L. Burtner....................... 43 Chief Financial Officer, Treasurer and
Secretary
W. Clifton Duffey........................ 29 Chief Technology Officer
Tye R. Schriever......................... 38 Chief Information Officer
James W. Price........................... 42 Senior Vice President, Sales and
Marketing
Norton Cutler, Esq....................... 47 Vice President, Regulatory Affairs and
General Counsel
John W. Gerdelman........................ 47 Director
Fredjoseph Goldner....................... 32 Director
Charles J. McMinn........................ 48 Director
Richard Shapero.......................... 51 Director
</TABLE>
ROBERT E. DUPUIS has served as our President, Chief Executive Officer and
as a director since April 1999. Mr. Dupuis was elected Chairman of the Board in
December 1999. From August 1998 to April 1999, Mr. Dupuis was an executive on
staff with Crosspoint Venture Partners, a venture capital firm with substantial
investments in us and in the telecommunications industry. In August 1998, Mr.
Dupuis was the President and Chief Executive Officer of Able Telecom, a
construction company specializing in telecommunications. From May 1996 to
January 1998, Mr. Dupuis served as Chief Executive Officer and President of RMD
Americas, a wireless communications company with international operations. From
June 1992 through April 1996, Mr. Dupuis served as Vice President and General
Manager of Comsat International and as Vice President of Sales and Marketing of
Comsat World Systems.
RICHARD L. BURTNER, one of our founders, has served as our Chief Financial
Officer, Treasurer and Secretary since March 1999. From March 1998 to March
1999, Mr. Burtner was self-employed as a consultant specializing in financial
management for start-up companies, including serving as our Chief Financial
Officer. From April 1997 to March 1998, Mr. Burtner served as the Chief
Financial Officer for Medical Information Management Systems, Inc., an
information technology and Internet-based medical records software company. From
April 1996 to March 1997, Mr. Burtner was the Chief Financial Officer for Biomed
International, a start-up healthcare company. From March 1995 to April 1996, Mr.
Burtner served as the Vice President of Finance for Dover Elevator Company, a
$400 million distribution, construction and service business with approximately
70 branch offices around the United States. Prior to joining Dover, Mr. Burtner
served as Chief Financial Officer at Spatco, Inc., a Southeastern regional
distribution, service and environmental company, from January 1991 to February
1995. Mr. Burtner spent the first eight years of his career employed by Deloitte
Haskins & Sells, now Deloitte & Touche LLP.
44
<PAGE> 47
W. CLIFTON DUFFEY has served as our Chief Technology Officer since November
1999. Mr. Duffey joined us in July 1999 as our Vice President of Engineering.
From July 1998 to July 1999, Mr. Duffey was a senior network consultant for
Ascend Professional Services, the consulting division of Ascend Communications,
Inc., a major manufacturer of networking equipment that was recently acquired by
Lucent Technologies, Inc. From March 1996 to July 1998, Mr. Duffey was a Senior
Manager responsible for government account services with Intermedia
Communications, a telecommunications provider. From May 1995 to March 1996, Mr.
Duffey worked as a software engineer for Harris Corporation, a defense
contractor.
TYE R. SCHRIEVER has served as our Chief Information Officer since October
1999. From June 1998 to October 1999, Mr. Schriever served as the Vice President
of Information Technology responsible for the strategic planning and
architecture for Broadwing, Inc., an international telecommunications provider.
From October 1995 to June 1998, Mr. Schriever served as the Vice President of
Information Technology Planning and Administration and Director of Information
Technology Operations and Administration for Sprint PCS, the largest wireless
network company in the United States. From November 1993 to October 1995, Mr.
Schriever was a manager for Sprint Corporation, a telecommunications provider.
JAMES W. PRICE has served as our Senior Vice President of Sales and
Marketing since November 1999. From July 1996 to October 1999, Mr. Price served
as the Regional Vice President (Southeast) for Winstar Communications, a
provider of wireless telecommunications services. From October 1994 to July
1996, Mr. Price was a partner with HCTC, a cellular phone company.
NORTON CUTLER, ESQ. has served as General Counsel and Vice President of
Regulatory Affairs since July 1999. From September 1993 to June 1999, Mr. Cutler
was an attorney and most recently as an associate general counsel with U S West,
an incumbent local exchange carrier covering a 14-state region west of the
Mississippi River, where he was responsible for complex civil and regulatory
litigation.
JOHN W. GERDELMAN has served as a director since January 2000. From April
1999 to December 1999, Mr. Gerdelman served as Chief Executive Officer of
USA.net, a provider of e-mail services. From September 1994 to April 1999, Mr.
Gerdelman served as President of MCI Services, where he developed and
implemented MCI's network and infrastructure technology strategy. Mr. Gerdelman
serves on the board of directors of Sycamore Networks, a publicly-traded network
solutions company, and several privately held companies.
FREDJOSEPH GOLDNER, one of our founders, has served as a director since
September 1998 and had served as our Chief Operating Officer from April 1999 to
January 2000. From September 1998 to April 1999, Mr. Goldner served as our
President and Chief Executive Officer. From March 1998 to September 1998, Mr.
Goldner was Chief Manager of our predecessor limited liability company. From
December 1997 until February 1998, Mr. Goldner was employed by KPMG Peat Marwick
to develop its electronic commerce and consulting practice. From October 1996 to
December 1997, Mr. Goldner was the Director of Internet Operations for Medical
Information Management, Inc., an information technology and Internet-based
medical records software company. From September 1995 to October 1996, Mr.
Goldner developed electronic commerce solutions for B.A. Pargh, Inc., a supplier
of office supplies to businesses.
CHARLES J. MCMINN has served as a director since January 2000. Mr. McMinn
has over 22 years of experience in creating, financing, operating and advising
technology companies. Mr. McMinn is currently the Chairman of the Board of
Directors, Chief Executive Officer and founder of Certive Corporation, a
provider of out-sourced services to small businesses. He was a founder of Covad
Communications Group, a publicly traded national provider of DSL services. From
July 1998 to
45
<PAGE> 48
October 1999, he served as Chairman of the Board of Directors of Covad and
served as Covad's President, Chief Executive Officer and a member of its board
of directors from October 1996 to July 1998. From July 1995 to October 1996, and
from August 1993 to June 1994, Mr. McMinn managed his own consulting firm, Cefac
Consulting, which focused on strategic development for information technology
and communications businesses. Mr. McMinn was the product manager for the 8086
microprocessor at Intel.
RICHARD SHAPERO has served as a member of our board of directors since
March 1999. Mr. Shapero has been a general partner of Crosspoint Venture
Partners, L.P., a venture capital investment firm, since April 1993. From
January 1991 to June 1992, he served as Chief Operating Officer of Shiva
Corporation, a computer network company. Previously, he was a Vice President of
Sun Microsystems, Senior Director of Marketing at AST, and held marketing and
sales positions at Informatics General Corporation and UNIVAC's Communications
Division. Mr. Shapero serves as a member of the board of directors of Sagent
Technology, Inc., Covad Communications Group, Inc. and several privately held
companies.
CLASSIFIED BOARD OF DIRECTORS
At the first annual meeting of stockholders following the closing of our
initial public offering, our board of directors will be divided into three
classes, as nearly equal in size as is practicable, to serve staggered
three-year terms:
- Class I, whose term will expire at the annual meeting of stockholders to
be held in 2002;
- Class II, whose term will expire at the annual meeting of stockholders to
be held in 2003; and
- Class III, whose term will expire at the annual meeting of stockholders
to be held in 2004.
Upon expiration of the term of a class of directors, the directors for that
class will be elected for three-year terms at the annual meeting of stockholders
in the year in which their term expires. Each director's term is subject to the
election and qualification of his or her successor, or his or her earlier death,
resignation or removal.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit committee and a
compensation committee.
Audit Committee. The audit committee reports to the board of directors
with regard to the selection of our independent auditors, the scope of our
annual audits, fees to be paid to the auditors, the performance of our
independent auditors, compliance with our accounting and financial policies and
management's procedures and policies relative to the adequacy of our internal
accounting controls. The members of the audit committee are Messrs. McMinn,
Gerdelman and Shapero.
Compensation Committee. The compensation committee reviews and makes
recommendations to the board regarding our compensation policies and all forms
of compensation to be provided to our directors, executive officers and certain
other employees. In addition, the compensation committee reviews bonus and stock
compensation arrangements for all of our other employees. The compensation
committee also administers our stock option and stock purchase plans. The
members of the compensation committee are Messrs. McMinn and Shapero.
DIRECTOR COMPENSATION
Directors do not receive compensation for services provided as a director.
All directors are reimbursed for their out-of-pocket expenses in serving on our
board of directors.
46
<PAGE> 49
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our board of directors or compensation
committee. Our compensation committee currently consists of Messrs. McMinn and
Shapero, neither of whom currently serves or has previously served as an officer
or employee of our company. During the past year, the full board of directors
performed the functions generally performed by the compensation committee of the
board.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of our directors to
us or our stockholders for breaches of the directors' fiduciary duties to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. We also maintain
directors' and officers' liability insurance and enter into indemnification
agreements with all of our directors and executive officers.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides the total compensation paid during 1999 to our
chief executive officers and our other executive officers whose compensation
(salary and bonus) exceeded $100,000. Mr. Goldner served as our chief executive
officer until April 13, 1999.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------ ALL
SECURITIES OTHER
UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION(S) YEAR SALARY($) BONUS($) OPTIONS(#) SATION($)
- ------------------------------ ---- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Robert E. Dupuis................................... 1999 178,000 -- 1,980,000 83,717(1)
President and Chief
Executive Officer
Fredjoseph Goldner................................. 1999 104,618 -- -- --
Chief Operating Officer
Richard L. Burtner................................. 1999 121,861 -- -- --
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
- -------------------------
(1) Includes $83,717 for relocation expenses.
OPTION GRANTS IN 1999
The exercise prices represent our board's estimate of the fair market value
of the common stock on the grant date. In establishing these prices, our board
considered many factors, including our financial condition and operating
results, recent transactions and the market for comparable stocks.
The amount shown as potential realizable value represents hypothetical
gains that could be achieved for the respective options if exercised at the end
of the option term. These amounts represent certain assumed rates of
appreciation in the value of our common stock. The 5% and 10%
47
<PAGE> 50
assumed annual rate of compounded stock price appreciation are mandated by rules
of the Securities and Exchange Commission and do not represent our estimate or
projection of the future price of our common stock. The potential realizable
value is calculated based on the ten-year term of the option at its time of
grant. It is calculated based on the assumption that our initial public offering
price of $ per share appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock price.
Actual gains, if any, on stock option exercises depend on the future performance
of our common stock. The amounts reflected in the table may not necessarily be
achieved.
We granted these options under our 1999 Stock Option Plan. Each option has
a maximum term of ten years, subject to earlier termination if the optionee's
services are terminated. Except as otherwise noted, these options are
immediately exercisable, but we have the right to repurchase, at the exercise
price, any shares that have not vested at the time the optionee terminates
employment with us. The percentage of total options granted to our employees in
the last fiscal year is based on options to purchase an aggregate of 6,500,265
shares of common stock granted during 1999. The following table sets forth
information concerning the individual grants of stock options to each of our
named executive officers in 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS OF ASSUMED ANNUAL RATES
--------------------------------------------------------------- OF STOCK PRICE
PERCENT OF TOTAL EXERCISE APPRECIATION
NUMBER OF SECURITIES OPTIONS GRANTED PRICE FOR OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES PER EXPIRATION --------------------------
NAME GRANTED(1)(#) IN 1999 SHARE($) DATE 5% 10%
- ---- -------------------- ---------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert Dupuis(1)............ 1,980,000 30.5 $0.049 04/13/09 $ $
Fredjoseph Goldner.......... -- -- -- -- -- --
Richard Burtner............. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) These options are fully exercisable but if Mr. Dupuis leaves us before all
of his option shares vest, we have the right to repurchase, at the exercise
price, any shares that have not vested. These options vested as to 12.5% on
October 13, 1999 and vest as to the remaining 87.5% in equal monthly
installments over the following 42 months.
48
<PAGE> 51
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1999 with respect to each
of our executive officers named in the Summary Compensation Table. We have never
granted any stock appreciation rights. There was no public trading market for
our common stock as of December 31, 1999. Accordingly we have based the value of
the unexercised in-the-money options at December 31, 1999 on an assumed initial
public offering price of $ per share, less the applicable exercise
price per share, multiplied by the number of shares underlying the option.
Actual gains on exercise, if any, will depend on the value of our common stock
on the date on which the shares are sold.
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER (MARKET PRICE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OF SHARES AT EXERCISE OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON LESS EXERCISE ---------------------------- ---------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Dupuis(1)........ 75,000 1,905,000 --
Fredjoseph Goldner...... -- -- -- -- -- --
Richard Burtner......... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) As of December 31, 1999, Mr. Dupuis' options were exercisable as to all
1,905,000 shares, 282,500 of which were vested and 1,622,500 of which were
unvested. If Mr. Dupuis leaves us before all of his option shares vest, we
have the right to repurchase the unvested option shares at the exercise
price paid per share.
1999 STOCK OPTION PLAN
As of March 17, 1999, we had reserved 3,259,500 shares of common stock for
issuance pursuant to our 1999 Stock Option Plan, which has been approved by our
board of directors and stockholders. The 1999 Stock Option Plan provided for the
granting to employees and officers of qualified "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, and for the
granting to employees, officers and directors and consultants of nonqualified
stock options. The employee stock option pool was increased by 4,356,000 options
on October 26, 1999, and an updated 1999 Stock Option Plan was approved. The
1999 Stock Option Plan is administered by our board of directors. Options
granted generally vest at a rate of 25% of the shares at the end of the first
year of employment and 2.0883% of the shares at the end of each month
thereafter, provided the individual remains and employee, and generally expire
ten years from the date of grant.
As of December 31, 1999, options to purchase an aggregate of 6,494,450
shares of common stock had been granted, net of cancellations, and 922,735
shares of common stock remained available for future grants. Since the adoption
of the 1999 Stock Option Plan on March 17, 1999, 78,315 non-qualified options
and 75,000 incentive stock options to purchase common stock have been exercised.
The exercise price of incentive stock options granted under the 1999 Stock
Plan must be at least equal to the fair value of our common stock on the date of
grant. The exercise price of options to an optionee who owns more than 10% of
our outstanding voting securities must equal at least 110% of the fair value of
the common stock on the date of grant, and the option term shall not exceed ten
years measured from the option grant date.
49
<PAGE> 52
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
None of our employees are subject to any employment agreements. All of our
employees serve at the discretion of the board of directors.
Mr. Burtner is a party to a Stock Restriction and Special Payment Agreement
entered into on March 17, 1999. Under the terms of this agreement, Mr. Burtner
was required to place in escrow 65% of his common stock holdings. On the last
day of each month on which he is employed beginning in April 1999, he has been
and is entitled to receive 2.0883% of his common stock holdings from escrow. In
the event Mr. Burtner is terminated without cause (as defined in the
agreements), then he is entitled to receive from escrow a number of shares equal
to 25% of the shares remaining in escrow. We must repurchase the shares
remaining in escrow at a price of $0.049 per share. While the shares are held in
escrow, Mr. Burtner retains the voting rights associated with his shares of
common stock held in escrow. The escrow agent for the escrowed shares is our
corporate secretary. Mr. Burtner is and has been our corporate secretary since
these agreements were executed. Mr. Burtner is entitled to receive 50% of his
escrowed shares upon a change in control.
We have an arrangement with Mr. Dupuis governing the vesting of his stock
options upon a change in control. The agreement provides that 50% of Mr.
Dupuis's unvested options shall become exercisable upon a change in control. In
the event Mr. Dupuis involuntarily loses his job within six months following a
change in control, the remaining balance of his unvested options become vested.
50
<PAGE> 53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRIVATE PLACEMENTS OF EQUITY
Common Stock. In connection with our founding, we issued 4,927,500
membership units of BlueStar Communications, LLC to each of Fredjoseph Goldner
and Scott Kozicki in exchange for their contribution of services and 420,000
membership units to Richard Burtner in exchange for his services. These
membership units were subsequently converted into shares of our common stock.
On December 18, 1998, we issued 187,281 shares of common stock to Mr.
Burtner upon his achievement of milestones established by our directors and set
forth in his consulting agreement. In March 1999, we issued an additional
1,390,017 shares of common stock to Mr. Burtner primarily upon his becoming a
full-time employee.
Series A Preferred Stock. In March 1999, we issued a total of 12,345,003
shares of Series A preferred stock for aggregate consideration of approximately
$6.0 million. Of the 12,345,003 shares, we sold the following number of shares
to a 5% stockholder and entities affiliated with our officers:
- 11,020,410 shares of Series A preferred stock to affiliates of Crosspoint
Venture Partners; and
- 100,104 shares of Series A preferred stock to the Profit Sharing (Keogh)
Plan of Richard Burtner, Tim Burtner, the brother of Richard Burtner and
Dr. Fred Goldner, the father of Fredjoseph Goldner.
Series B Preferred Stock. In August 1999, we issued a total of 8,177,040
shares of Series B preferred stock for an aggregate consideration of
approximately $31.1 million. Of the 8,177,040 shares, we sold the following
number of shares to our 5% stockholders:
- 3,943,914 shares of Series B preferred stock to affiliates of Crosspoint
Venture Partners; and
- 2,629,272 shares of Series B preferred stock to Grammercy BlueStar, L.P.
At the time this Series B preferred stock financing was negotiated and
consummated, Mr. Shapero, a partner of Crosspoint Venture Partners, served on
our board of directors pursuant to a voting agreement among the Series A
preferred stock purchasers, our founders and us.
Registration Rights. We have granted the investors in our preferred stock
rights to require us to register or include their shares in a registered
offering of our securities. Please see "Description of Capital
Stock -- Registration Rights" for a description of these registration rights.
STOCK RESTRICTION AND SPECIAL PAYMENT AGREEMENTS
Messrs. Burtner, Goldner and Kozicki are parties to stock restriction and
special payment agreements entered into on March 17, 1999. Under the terms of
these agreements, Messrs. Burtner, Goldner and Kozicki were required to place in
escrow 65% of their common stock holdings. Messrs. Burtner, Goldner and Kozicki
are entitled to receive approximately two percent of their respective escrowed
shares per month beginning in April 1999. In the event of their termination
without cause, they are entitled to receive from escrow the number of shares
that would have vested if they had remained with us for 12 additional months. We
may then repurchase the shares remaining in escrow at a price of $0.049 per
share.
On September 7, 1999, Mr. Kozicki left our employ. Before his departure,
Mr. Kozicki served as Chief Technology Officer. Under the terms of his stock
restriction and special payments agreement, Mr. Kozicki retained ownership of
2,864,787 shares of our common stock, and we repurchased
51
<PAGE> 54
2,020,971 shares from him at a cost of $0.049 per share. We also are required to
pay Mr. Kozicki's salary until March 1999. We also agreed to pay the cost of Mr.
Kozicki's health insurance premiums for a maximum period of 18 months, to
indemnify him for claims arising from his activities as an officer of BlueStar,
and to release him from any claims we might have against him. This transaction
was unanimously approved by our board of directors.
On January 7, 2000, Mr. Goldner left our employ. Mr. Goldner was one of our
founders and served as Chief Operating Officer immediately prior to leaving the
company. Under the terms of a stock restriction and special payments agreement
we entered into with Mr. Goldner, Mr. Goldner retained ownership of 3,142,565
shares of our common stock and we repurchased 1,784,935 shares from him at a
cost of $0.049 per share. We also are required to pay Mr. Goldner's salary and
health insurance premiums until January 2001. We also agreed to indemnify him
for claims arising from his activities as an officer of BlueStar, and to release
him from any claims we might have against him. This transaction was approved by
a majority of the non-interested members of our board of directors. Mr. Goldner
remains a member of our board of directors.
Buyback of Certain Shares. In December 1998, we repurchased from Mr.
Kozicki 41,688 shares of our common stock held by him in exchange for a payment
by us of $13,896 to cover expenses incurred by Mr. Kozicki in connection with
his purchase of telecommunications equipment he contributed to us. We also
repurchased shares owned by Messrs. Goldner and Kozicki in connection with their
departure from the company as required by stock restriction and special payments
agreements we entered into with each of Messrs. Goldner and Kozicki.
52
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, as adjusted to reflect
the sale of common stock offered by us in the offering for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive director named in the Summary Compensation Table on page
47;
- each of our directors; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. The numbers of shares of common stock used to
calculate the percentage ownership of each listed person includes the shares of
common stock underlying options or warrants held by such persons that are
exercisable within 60 days of this offering. The percentage of beneficial
ownership before the offering is based on 32,234,943 shares, consisting of
11,712,900 shares of common stock outstanding as of December 31, 1999, and
20,522,043 shares issuable upon the conversion of the Series A preferred stock
and Series B preferred stock. Percentage of beneficial ownership after the
offering is based on shares, including the 318,471 shares of common
stock issued upon conversion of the Series C preferred stock and
the shares to be sold in this offering. The post-offering ownership
percentages in the table below do not take into account any exercise of the
underwriters' over-allotment option.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY OWNED
-------------------
SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Executive Officers and Directors:
Robert E. Dupuis...................................... 1,980,000 5.8%
Richard L. Burtner.................................... 2,019,798 6.2
W. Clifton Duffey..................................... 300,000 *
Tye R. Schriever...................................... 150,000 *
Norton Cutler, Esq.................................... 300,000 *
James W. Price........................................ 300,000 *
Richard Shapero....................................... 14,964,324 46.4
Fredjoseph Goldner.................................... 4,927,500 15.3
Charles McMinn........................................ -- --
John W. Gerdelman..................................... -- --
All directors and executive officers as a group (10
persons)............................................ 24,941,622 70.9
Other 5% Stockholders:
Crosspoint Venture Partners........................... 14,964,324 46.4%
Grammercy BlueStar, L.P. ............................. 2,629,272 8.2
Scott E. Kozicki...................................... 2,864,787 8.9
</TABLE>
- -------------------------
* Indicates beneficial ownership of less than one percent of the total
outstanding common stock.
53
<PAGE> 56
Executive Officers and Directors. Additional information regarding the
beneficial ownership of shares held by our executive officers and directors is
contained below. Except as indicated below, the address for each executive
officer and directors is 414 Union Street, Suite 900, Nashville, Tennessee
37219.
- Robert E. Dupuis. Includes 1,905,000 shares issued upon exercise of
immediately exercisable stock options.
- Richard L. Burtner. Includes 730,262 shares that are subject to our
right to repurchase them if Mr. Burtner's services are terminated prior
to vesting, 40,000 shares owned by Mr. Burtner's spouse and 22,500 shares
held in Mr. Burtner's profit sharing (Keough) plan. Of Mr. Burtner's
2,019,798 beneficially owned shares, 1,054,823 shares are unvested.
Includes 90,000 shares, of which Mr. Burtner disclaims beneficial
ownership, held in irrevocable trusts for his children.
- W. Clifton Duffey. Includes 300,000 shares issuable upon exercise of
immediately exercisable stock options.
- Tye R. Schriever. Includes 150,000 shares issuable upon exercise of
immediately exercisable stock options.
- Norton Cutler. Includes 300,000 shares issuable upon exercise of
immediately exercisable stock options.
- James W. Price. Includes 300,000 shares issuable upon exercise of
immediately exercisable stock options.
- Richard Shapero. All shares indicated as owned by Mr. Shapero are
included due to his affiliation with funds affiliated with Crosspoint
Venture Partners. Mr. Shapero's address is c/o Crosspoint Venture
Partners, The Pioneer Hotel, 2925 Woodside Road, Woodside, California
94062.
- Fredjoseph Goldner. Excludes 12,987 shares, of which Mr. Goldner
disclaims beneficial ownership, held in irrevocable trusts for his child.
Includes 1,784,935 shares that we repurchased from Mr. Goldner in January
2000.
- Charles J. McMinn. Excludes 318,471 shares of our Series C preferred
stock purchased on January 28, 2000. .
Other 5% Stockholders. Information regarding the beneficial ownership of
5% or more of our stock is set forth below:
- Crosspoint Venture Partners. Includes (a) 12,571,683 shares held by
Crosspoint Venture Partners 1997; (b) 1,078,005 shares held by Crosspoint
Venture Partners LS 1997; and (c) 1,314,636 shares held by Crosspoint
Venture Partners LS 1999. These partnerships may be deemed to
beneficially own each other's shares because the general partners of each
partnership are affiliated. Each partnership, however, disclaims
beneficial ownership of each others' shares. The address of the
investment funds affiliated with Crosspoint Venture Partners is The
Pioneer Hotel, 2925 Woodside Road, Woodside, California 94062.
- Scott Kozicki Mr. Kozicki's address is 409 Pebble Creek, Antioch,
Tennessee 37013.
- Grammercy BlueStar, L.P. The address of Grammercy BlueStar, L.P. is 712
5th Avenue, 43rd Floor, New York, New York 10019.
54
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 150,000,000 shares of common stock, par value $0.01 per share, and 25,000,000
shares of preferred stock, par value $0.01 per share. The rights and preferences
of the authorized preferred stock may be designated from time to time by our
board of directors. The following summary is qualified by reference to our
certificate of incorporation which will become effective upon consummation of
this offering and our bylaws, forms of which have been filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
As of December 31, 1999, there were 11,712,900 shares of common stock
outstanding that were held of record by 24 stockholders. Holders of our common
stock are entitled to one vote per share on all matters to be voted upon by the
stockholders. The holders of common stock are not entitled to cumulate voting
rights with respect to election of directors, and as a result, minority
stockholders will not be able to elect directors on the basis of their votes
alone. Subject to limitations under Delaware law and preferences that may apply
to any outstanding shares of preferred stock, holders of common stock are
entitled to receive ratably such dividends or other distributions, if any, as
may be declared by our board of directors out of funds legally available
therefor. In the event of our liquidation, dissolution or winding up, holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to the liquidation preference of any outstanding
preferred stock. The common stock has no preemptive, conversion or other rights
to subscribe for additional securities issued by us. There are no redemption of
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of the offering will be, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock that we may designate and issue in the
future.
PREFERRED STOCK
As of December 31, 1999, there were 20,522,043 shares of preferred stock
outstanding. Upon the closing of this offering, all outstanding shares of
preferred stock outstanding as of December 31, 1999 will automatically convert
into 20,522,043 shares of common stock. On January 28, 2000, we issued 318,471
shares of Series C Preferred Stock that will automatically convert into 318,471
shares of common stock upon closing of this offering. Our board of directors
will have the authority, without further action by the stockholders, to issue up
to 25,000,000 shares of preferred stock in one or more series, to fix the
rights, preferences, privileges and restrictions of the authorized preferred
stock and to issue shares of each such series. The issuance of preferred stock
could have the effect of restricting dividends on the common stock, diluting the
voting power for the common stock, impairing the liquidation rights of the
common stock or delaying or preventing our change in control without further
action by the stockholders. At present, we have no plans to issue any shares of
preferred stock.
WARRANTS
In connection with the funding of a $1,000,000 working capital line of
credit from Ascend Communications, Inc. (now a part of Lucent Technologies,
Inc.) in August 1998 and February 1999, we issued warrants to purchase up to
300,000 shares of our common stock with an exercise price of $0.33 per share.
These warrants are exercisable currently. These warrants automatically convert
to shares of our common stock if not exercised by August 8, 2008.
55
<PAGE> 58
In July 1999, in connection with services provided to us, we agreed to
issue to Boyle Consolidated Communications, LLC, a warrant to purchase 60,000
shares of common stock with an exercise price of $1.67 per share. This warrant
is immediately exercisable, subject to certain repurchase rights, and expires on
the earlier of July 28, 2004 or a breach of our telecommunications access
agreement with Boyle.
REGISTRATION RIGHTS
According to the terms of a registration rights agreement, beginning 180
days after the closing of this offering, some of our stockholders who will hold
in the aggregate shares of common stock, may require us to file a
registration statement under the Securities Act of 1933 with respect to the
resale of their shares. To demand such registration, investors holding an
aggregate of at least shares must request that the registration statement
register the resale of at least shares. We are not required to effect
more than two demand registrations in any twelve-month period.
Additionally, the holders of 20,840,514 shares will have piggyback
registration rights with respect to the future registration of our shares of
common stock under the Securities Act. If we propose to register any shares of
common stock under the Securities Act, the holders of shares having piggyback
registration rights are entitled to receive notice of such registration and are
entitled to include their shares in the registration.
At any time after we become eligible to file a registration statement on
Form S-3 under the Securities Act, holders of demand registration rights may
require us to file an unlimited number of registration statements on Form S-3
with respect to their shares of common stock.
These registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares of common stock to be included in the registration. We are generally
required to bear all of the expenses of all registrations under the registration
rights agreement, except underwriting discounts and commissions. The
registration rights agreement also contains our commitment to indemnify the
holders of registration rights for losses they incur in connection with
registrations under the agreement. Registration of any of the shares of common
stock held by security holders with registration rights would result in those
shares becoming freely tradeable without restriction under the Securities Act.
ANTI-TAKEOVER EFFECTS
Provisions of Delaware law, our certificate of incorporation, our bylaws
and certain contracts to which we are a party, could have the effect of delaying
or preventing a third party from acquiring us, even if the acquisition would
benefit our stockholders. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of our board of
directors and in the policies formulated by the board of directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of BlueStar. These provisions are designed to
reduce our vulnerability to an unsolicited proposal for a takeover that does not
contemplate the acquisition of all of our outstanding shares, or an unsolicited
proposal for the restructuring or sale of all or part of BlueStar.
56
<PAGE> 59
Delaware anti-takeover statute. We are subject to the provisions of
Section 203 of the Delaware General Corporation Law, an anti-takeover law.
Subject to certain exceptions, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the time of the transaction in
which the person became an interested stockholder, unless:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding, for purposes of determining the
number of shares outstanding, those shares owned (1) by persons who are
directors and also officers and (2) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
For purposes of Section 203, a "business combination" includes a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior to
the date of determination whether the person is an "interested stockholder," did
own, 15% or more of the corporation's voting stock.
In addition, provisions of our certificate of incorporation and bylaws
which will take effect upon the closing of this offering may have an
anti-takeover effect. These provisions may delay, defer or prevent a tender
offer or takeover attempt of our company that a stockholder might consider in
his or her best interest, including attempts that might result in a premium over
the market price for the shares held by our stockholders. The following
summarizes these provisions:
Classified board of directors. Our certificate of incorporation will
provide that at the first annual meeting following the closing of our initial
public offering, our board of directors will be divided into three classes of
directors, as nearly equal in size as is practicable, serving staggered
three-year terms. As a result, approximately one-third of the board of directors
will be elected each year. These provisions, when coupled with the provisions of
our certificate of incorporation and bylaws authorizing our board of directors
to fill vacant directorships or increase the size of our board, may deter a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors.
Stockholder action; special meeting of stockholders. Our certificate of
incorporation will eliminate the ability of stockholders to act by written
consent. Our bylaws provide that special meetings of our stockholders may be
called only by a majority of our board of directors.
Advance notice requirements for stockholders proposals and directors
nominations. Our bylaws will 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 us with
timely written notice of their proposal. To be timely, a stockholder's notice
must be delivered to or mailed and received at our principal executive offices
not less than 120 days before the date we
57
<PAGE> 60
released the notice of annual meeting to stockholders in connection with the
previous year's annual meeting. If, however, no meeting was held in the prior
year or the date of the annual meeting has been changed by more than 30 days
from the date contemplated in the notice of annual meeting, notice by the
stockholder, in order to be timely, must be received a reasonable time before we
release the notice of annual meeting to stockholders. 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. Our authorized but unissued shares of
common stock and preferred stock are available for our board to issue without
stockholder approval. We may use these additional shares for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of our
authorized but unissued shares of common stock and preferred stock could render
it more difficult or discourage an attempt to obtain control of our company by
means of a proxy context, tender offer, merger or other transaction.
Supermajority vote provisions. 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 certificate of
incorporation will impose supermajority voting requirements in connection with
the amendment of certain provisions of our certificate of incorporation,
including the provisions relating to the classified board of directors and
action by written consent of stockholders.
Indemnification. We will indemnify our directors and officers to the
fullest extent permitted by Delaware law. We intend to enter into indemnity
agreements with all of our directors and officers and to purchase directors' and
officers' liability insurance. In addition, our certificate of incorporation
limits the personal liability of our board members for breaches by the directors
of their fiduciary duties where permitted under Delaware law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
NASDAQ NATIONAL MARKET LISTING
We have applied to list our stock on The Nasdaq National Market under the
trading symbol "BLST".
58
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the prevailing market price of our common
stock could decline. Furthermore, because we do not expect any shares will be
available for sale for 180 days after this offering as a result of the
contractual and legal restrictions on resale described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price of the
common stock and our ability to raise equity capital in the future.
Upon the closing of this offering, we will have outstanding an aggregate
of shares of our common stock, based upon the number of shares
outstanding at December 31, 1999 and assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act unless they are purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. The
remaining shares will be eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<S> <C>
.......................... After the date of this prospectus,
freely tradeable shares sold in this
offering and shares saleable under Rule
144(k) that are not subject to the
180-day lock-up.
.......................... After 180 days from the date of this
prospectus, the 180-day lock-up is
released and these shares are eligible
for sale on the public markets under
Rule 144 (subject, in some cases, to
volume limitations), Rule 144(k) or
Rule 701.
.......................... After 180 days from the date of this
prospectus, restricted securities that
are held for less than one year and are
not eligible for sale on the public
markets under Rule 144. However, of
these shares will become eligible for
sale on the public markets within days
after the expiration of the lock-up.
</TABLE>
Lock-up agreements. All of our directors and officers and substantially
all of our stockholders and option holders have signed or are otherwise subject
to lock-up agreements under which they agreed not to transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock
for 180 days after the date of this prospectus. Transfers or dispositions can be
made sooner: (a) with the prior written consent of Credit Suisse First Boston
Corporation, in the case of certain transfers to affiliates who sign identical
lock-up agreements or (b) if the transfer is a bona fide gift and the donee
signs an identical lock-up agreement.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year, including the holding period
of certain prior owners other than affiliates, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (a) 1%
of the number of shares of our common stock then outstanding, which will equal
approximately shares
59
<PAGE> 62
immediately after the offering, or (b) the average weekly trading volume of our
common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to that sale. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the three months preceding a sale and
who has beneficially owned shares for at least two years, including the holding
period of certain prior owners other than affiliates, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, Rule 144(k) shares may be sold immediately upon the closing of this
offering.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, each of our directors, officers, employees, consultants or advisors who
purchased shares from us before the date of this prospectus in connection with a
compensatory stock plan or other written compensatory agreement is eligible to
resell such shares 90 days after the effective date of this offering in reliance
on Rule 144, but without compliance with certain restrictions, including the
holding period, contained in Rule 144.
Registration rights. After this offering, the holders of shares of our
common stock will be entitled to certain rights with respect to the registration
of those shares under the Securities Act. See "Description of Capital
Stock--Registration Rights." After any such registration of these shares, such
shares will be freely tradeable without restriction under the Securities Act.
These sales could cause the market price of our common stock to decline.
Stock plans. After this offering, we intend to file one or more Form S-8
registration statements under the Securities Act covering shares of
common stock issued or reserved for issuance under our 1999 Stock Incentive
Plan. We expect these registration statements to become effective as soon as
practicable after the effective date of this offering.
As of December 31, 1999, options to purchase 6,494,450 shares of our common
stock were issued and outstanding. All of these shares will be eligible for sale
in the public market from time to time, subject to vesting provisions, Rule 144
volume limitations applicable to our affiliates and the expiration of lock-up
agreements.
60
<PAGE> 63
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
GENERAL
This section summarizes the material U.S. federal tax consequences to
holders of common stock that are "non-U.S. holders." In general, you are a
non-U.S. holder if you are:
- an individual that is a nonresident alien of the U.S.;
- a corporation organized or created under non-U.S. law;
- an estate that is not taxable in the U.S. on its worldwide income; or
- a trust that is either not subject to primary supervision over its
administration by a U.S. court or not subject to the control of a U.S.
person with respect to substantial trust decisions.
If a partnership holds common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding common stock, we
suggest that you consult your tax advisor.
This discussion does not address all aspects of U.S. federal taxation, and
in particular is limited in the following ways:
- The discussion only covers you if you hold your common stock as a capital
asset (that is, for investment purposes), and if you do not have a
special tax status.
- The discussion does not cover tax consequences that depend upon your
particular tax situation in addition to your ownership of the common
stock.
- The discussion is based on current law. Changes in the law may change the
tax treatment of the common stock.
- The discussion does not cover state, local or foreign law.
- We have not requested a ruling from the IRS on the tax consequences of
owning the common stock. As a result, the IRS could disagree with
portions of this discussion.
IF YOU ARE CONSIDERING BUYING COMMON STOCK, WE SUGGEST THAT YOU CONSULT
YOUR TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF HOLDING THE COMMON STOCK IN YOUR
PARTICULAR SITUATION.
DISTRIBUTIONS
Distributions paid on the shares of common stock generally will constitute
dividends for U.S. federal income tax purposes to the extent paid from our
current or accumulated earnings and profits, as determined under U.S. federal
income tax principles. Dividends paid to you generally will be subject to United
States withholding tax at a 30% rate or, if a tax treaty applies, a lower rate
specified by the treaty, unless you receive the dividends in connection with a
trade or business you conduct in the United States. To receive a reduced treaty
rate, you must furnish to us or our paying agent a duly completed Form 1001 or
Form W-8BEN (or substitute form) certifying to your qualification for the
reduced rate.
Currently, withholding generally is imposed on the gross amount of a
distribution, regardless of whether we have sufficient earnings and profits to
cause the distribution to be a dividend for U.S. federal income tax purposes.
However, withholding on distributions made after December 31, 2000,
61
<PAGE> 64
may be on less than the gross amount of the distribution if the distribution
exceeds a reasonable estimate of our accumulated and current earnings and
profits.
In order to claim an exemption from withholding on the ground that the
dividends are effectively connected with a U.S. trade or business, you must
provide to us or our paying agent a duly completed Form 4224 or Form W-8ECI (or
substitute form) certifying your exemption. However, dividends exempt from U.S.
withholding because they are effectively connected generally are subject to U.S.
federal income tax on a net income basis at the regular graduated tax rates.
These rules might be altered by an applicable tax treaty. If you are a
corporation, any effectively connected dividends received by you may, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate or a lower rate specified by an applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid before January 1,
2001 to an address outside the United States are presumed to be paid to a
resident of the country of address, unless the payor has knowledge to the
contrary, for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. However, U.S. Treasury
regulations applicable to dividends paid after December 31, 2000 eliminate this
presumption, subject to certain transition rules.
For dividends paid after December 31, 2000, you generally will be subject
to U.S. backup withholding tax at a 31% rate under the backup withholding rules
described below, rather than at the 30% or reduced tax treaty rate, as described
above, unless you comply with certain IRS certification or documentary evidence
procedures. Certain changes to these rules apply to dividend payments made after
December 31, 2000 to certain non-U.S. holders or foreign intermediaries. You
should consult your own tax advisor concerning the effect, if any, of the rules
affecting post-December 31, 2000 dividends on your possible investment in common
stock.
You may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund along with the required information with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
You generally will not be subject to U.S. federal income tax on a sale or
other disposition of the common stock unless one of the following apply:
- If the gain is effectively connected with a trade or business you conduct
in the United States you will, unless an applicable treaty provides
otherwise, be taxed on your net gain on the sale under regular graduated
U.S. federal income tax rates. If you are a foreign corporation, you may
be subject to an additional branch profits tax at a 30% rate, unless an
applicable income tax treaty provides for a lower rate.
- If you are an individual and are present in the United States for 183 or
more days in the taxable year of the disposition and certain other
conditions are met, you will be subject to a flat 30% tax on your gain
from the sale, which may be offset by certain U.S. capital losses.
- If we are or have been a "U.S. real property holding corporation" for
U.S. federal income tax purposes at any time during the shorter of the
five-year period ending on the date of the disposition or the period
during which you held the common stock, and certain other conditions
apply, you may be taxed in the U.S. on your gain from a sale of the
common stock pursuant to the effectively connected rules described above.
We believe that we never have been, are not currently and are not likely
in the future to become a U.S. real property holding corporation for U.S.
federal income tax purposes.
62
<PAGE> 65
FEDERAL ESTATE TAX
If you are an individual, common stock held by you at the time of your
death will be included in your gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the IRS the amount of dividends paid to you and
the tax withheld with respect to the dividends. These requirements apply even if
withholding was not required on payments to you. Pursuant to an applicable tax
treaty, that information may also be made available to the tax authorities in
your country of residence.
Backup withholding tax generally may be imposed at the rate of 31% on
certain payments to persons that fail to furnish certain required information.
Backup withholding generally will not apply to dividends paid before January 1,
2001 to non-U.S. holders. See the discussion under "Distributions" above for
rules regarding reporting requirements to avoid backup withholding on dividends
paid after December 31, 2000.
As a general matter, information reporting and backup withholding will not
apply to a payment to you by or through a foreign office of a foreign broker of
the proceeds of a sale of common stock effected outside the U.S. However,
information reporting requirements, but not backup withholding, will apply to
such a payment if the broker:
- is a U.S. person;
- is a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the U.S.;
- is a "controlled foreign corporation" as defined in the Code; or
- is a foreign partnership with certain U.S. connections (for payments made
after December 31, 2000).
Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that you are a non-U.S. holder
and certain conditions are met or you otherwise establish an exemption.
Payment of the proceeds of a sale of common stock by or through a U.S.
office of a broker is subject to both backup withholding and information
reporting unless you certify to the payor in the manner required as to your
non-U.S. status under penalties of perjury or otherwise establish an exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against your U.S.
federal income tax liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF CERTAIN U.S. FEDERAL INCOME
AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF
COMMON STOCK BY NON-U.S. HOLDERS. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE EFFECT OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAX LAWS AND ANY APPLICABLE INCOME OR ESTATE TAX TREATIES.
63
<PAGE> 66
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation and J.P.
Morgan Securities Inc. are acting as representatives, the following respective
numbers of shares of our common stock:
<TABLE>
<CAPTION>
Number
Underwriters of shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
J.P. Morgan Securities Inc..................................
Total.............................................
-------
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of our common stock at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us....... $ $ $ $
Expenses payable by us....... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement
64
<PAGE> 67
under the Securities Act relating to, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, or publicly disclose the intention to make any such offer, sale,
pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.
Our officers and directors have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our common stock, whether any such aforementioned transaction is to
be settled by delivery of our common stock or such other securities, in cash or
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for some of our vendors,
customers and other people and entities with whom we maintain business
relationships who have expressed an interest in purchasing common stock in the
offering. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase these reserved
shares. Any reserved shares not purchased will be offered by the underwriters to
the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments the underwriters may be required to
make in that respect.
We have applied to have our common stock listed on The Nasdaq National
Market under the symbol "BLST".
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the representatives, and does not reflect the market price for
our common stock that may prevail following this offering. The principal factors
to be considered in determining the public offering price will include:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
We can offer no assurance that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to this offering or that an active trading market for our
common stock will develop and continue after this offering.
65
<PAGE> 68
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
- In "passive" market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the common stock until the
time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of our common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
66
<PAGE> 69
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i)such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada, and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
67
<PAGE> 70
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
Brobeck, Phleger & Harrison LLP, Austin, Texas, will pass upon the validity
of the issuance of the shares of common stock offered hereby for us. Cravath,
Swaine & Moore, New York, New York, has represented the underwriters in this
offering.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1998 and 1999, and for the period from inception (March 7, 1997) through
December 31, 1997 and for the years ended December 31, 1998 and December 31,
1999 included in this prospectus and the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act of 1933 with respect to the shares of common stock to be sold in this
offering. This prospectus does not contain all the information included in the
registration statement and the exhibits thereto. For further information about
us and the shares of our common stock to be sold in this offering, please refer
to this registration statement. Complete exhibits have been filed with our
registration statement on Form S-1.
You may read and copy any contract, agreement or other document referred to
in this prospectus and any portion of our registration statement or any other
information from our filings at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our filings with the Securities and Exchange Commission,
including our registration statement, are also available to you without charge
at the Securities and Exchange Commission's Web site, http://www.sec.gov.
As a result of this offering, we are subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and will file and
furnish to our stockholders annual reports containing unaudited financial data
for the first three quarters of each fiscal year, proxy statements and other
information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information on file
at the public reference rooms or at the Securities and Exchange Commission's Web
site referred to above. You can also request copies of these documents, for a
copying fee, by writing to the Commission.
68
<PAGE> 71
BLUESTAR COMMUNICATIONS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1999......................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1999................................ F-4
Consolidated Statements of Stockholders' Equity for the
period from inception (March 7, 1997) through December 31,
1997 and for the years ended December 31, 1998 and 1999... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1999................................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BlueStar Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of BlueStar
Communications Group, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from inception
(March 7, 1997) through December 31, 1997 and for each of the two 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BlueStar
Communications Group, Inc. and subsidiaries as of December 31, 1998 and 1999,
and the consolidated results of its operations and its cash flows for the period
from inception (March 7, 1997) through December 31, 1997 and for each of the two
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 14, 2000, except for Note 12,
as to which the date is January 28, 2000
F-2
<PAGE> 73
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
--------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 501,611 $ 12,901,707
Accounts receivable....................................... 1,142 140,115
Inventories............................................... -- 108,051
Prepaid expenses and other current assets................. 6,531 325,643
--------- ------------
Total current assets................................... 509,284 13,475,516
--------- ------------
Property and equipment, net................................. 142,712 5,017,500
Collocation fees, net....................................... 19,250 7,445,674
Other assets................................................ -- 567,677
--------- ------------
Total assets........................................... $ 671,246 $ 26,506,367
========= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 30,978 $ 2,360,369
Accrued liabilities....................................... 169,316 4,645,776
Note payable.............................................. -- 541,526
Current portion of long-term debt......................... 155,000 320,922
--------- ------------
Total current liabilities.............................. 355,294 7,868,593
--------- ------------
Long-term debt, net of current portion...................... 345,000 503,174
--------- ------------
Total liabilities...................................... 700,294 8,371,767
Commitments and Contingencies:
Redeemable Convertible Preferred Stock, $.01 par value;
25,000,000 shares authorized
Series A 12,345,003 shares outstanding.................... -- 5,936,688
Series B 8,177,040 shares outstanding..................... -- 31,080,009
Stockholders' Deficit:
Common stock, $.0025 and $.01 par value at December 31, 1998
and 1999, respectively; 50,000,000 and 60,000,000 shares
authorized at December 31, 1998 and 1999, respectively;
12,145,593 and 11,712,900 shares issued and outstanding at
December 31, 1998 and 1999, respectively.................. 30,364 117,128
Additional paid-in capital.................................. 421,463 417,025
Deferred compensation....................................... -- (51,687)
Accumulated deficit......................................... (480,875) (19,364,563)
--------- ------------
Total stockholders' deficit............................ (29,048) (18,882,097)
--------- ------------
Total liabilities, redeemable convertible preferred
stock and stockholders' deficit....................... $ 671,246 $ 26,506,367
========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 74
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Revenues.................................................... $ 12,101 $ 771,109
Operating Expenses:
Network and product costs................................. 199,973 8,082,759
Selling and marketing..................................... 75,572 4,809,590
General and administrative................................ 426,250 6,961,370
Depreciation and amortization............................. 28,402 263,972
------------ ------------
Total operating expenses............................... 730,197 20,117,691
------------ ------------
Loss From Operations........................................ (718,096) (19,346,582)
Interest Income (Expense):
Interest income........................................... 14,633 607,200
Interest expense.......................................... (14,166) (65,486)
------------ ------------
Net interest income.................................... 467 541,714
------------ ------------
Net loss.................................................... $ (717,629) $(18,804,868)
============ ============
Net loss per common share, basic and diluted................ $ (0.07) $ (2.10)
============ ============
Weighted average number of common shares outstanding........ 10,154,010 8,953,153
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 75
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Period From Inception (March 7, 1997) Through December 31, 1997
And for the Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN DEFERRED MEMBER ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION CAPITAL DEFICIT TOTAL
---------- -------- ---------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 7, 1997 (date
of inception)................... -- $ -- $ -- $ -- $ -- $ -- $ --
Member contributions.......... -- -- -- -- 100,808 -- 100,808
Net income (loss) of LLC...... -- -- -- -- -- -- --
---------- -------- --------- -------- --------- ------------ ------------
Balance at December 31, 1997.... -- -- -- -- 100,808 -- 100,808
---------- -------- --------- -------- --------- ------------ ------------
Member contributions.......... -- -- -- -- 20,314 -- 20,314
Net loss of LLC............... -- -- -- -- -- (236,754) (236,754)
Issuance of common stock and
reorganization from LLC to
Corporation................. 9,855,000 24,637 (140,269) -- (121,122) 236,754 --
Common stock issued........... 2,332,281 5,831 575,524 -- -- -- 581,355
Common stock redemption....... (41,688) (104) (13,792) -- -- -- (13,896)
Net loss since
reorganization.............. -- -- -- -- -- (480,875) (480,875)
---------- -------- --------- -------- --------- ------------ ------------
Balance at December 31, 1998.... 12,145,593 30,364 421,463 -- -- (480,875) (29,048)
Change of par value of common
stock from $.0025 to $.01
per share................... -- 91,091 (91,091) -- -- -- --
Shares issued to employee
(1,298,244 shares restricted
and deferred compensation at
$0.049 per share)........... 1,390,017 13,900 54,211 (63,615) -- -- 4,496
Amortization of deferred stock
compensation -- restricted
stock....................... -- -- -- 11,928 -- -- 11,928
Compensation expense related
to non-employee warrant and
stock options granted....... -- -- 10,000 -- -- -- 10,000
Exercise of common stock
options..................... 198,315 1,983 22,442 -- -- -- 24,425
Repurchase of common stock.... (2,021,025) (20,210) -- -- -- (78,820) (99,030)
Net loss...................... -- -- -- -- -- (18,804,868) (18,804,868)
---------- -------- --------- -------- --------- ------------ ------------
Balance at December 31, 1999.... 11,712,900 $117,128 $ 417,025 $(51,687) $ -- $(19,364,563) $(18,882,097)
========== ======== ========= ======== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 76
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
Cash Flows From Operating Activities: --------- ------------
<S> <C> <C>
Net loss.................................................... $(717,629) $(18,804,868)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation of property and equipment................. 28,402 224,548
Amortization of collocation fees....................... -- 39,424
Amortization of deferred compensation.................. -- 11,928
Non-cash compensation expense.......................... 6,073 14,496
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,142) (138,973)
Inventories.......................................... -- (108,051)
Prepaid expenses and other current assets............ (6,531) (319,112)
Other assets......................................... -- (567,677)
Accounts payable..................................... 30,978 2,329,391
Accrued liabilities.................................. 163,243 4,476,460
--------- ------------
Net cash used in operating activities............. (496,606) (12,842,434)
--------- ------------
Cash Flows From Investing Activities:
Purchase of property and equipment........................ (70,306) (4,557,810)
Payments of collocation fees.............................. (19,250) (7,465,848)
--------- ------------
Net cash used in investing activities............. (89,556) (12,023,658)
--------- ------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock.................... 575,000 24,425
Repurchase of common stock................................ -- (99,030)
Proceeds from issuance of preferred stock................. -- 37,016,697
Proceeds from long-term debt.............................. 500,000 500,000
Repayments on long-term debt.............................. -- (175,904)
Other equity transactions, net............................ 12,773 --
--------- ------------
Net cash provided by financing activities......... 1,087,773 37,266,188
--------- ------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net Increase in Cash and Cash Equivalents................... 501,611 12,400,096
Cash and Cash Equivalents, beginning of year................ -- 501,611
--------- ------------
Cash and Cash Equivalents, end of year...................... $ 501,611 $ 12,901,707
========= ============
Supplemental Cash Flow Information:
Interest paid............................................. $ 14,166 $ 65,486
========= ============
Supplemental Non-Cash Financing Activities:
Software purchased through short-term note payable........ $ -- $ 541,526
========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 77
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BlueStar Properties, Inc., a Tennessee corporation, was incorporated on
September 28, 1998. On the same date, subsequent to incorporation, all assets
and liabilities of BlueStar Communications, LLC were merged with and into
BlueStar Properties, Inc., a Tennessee corporation, in a common control
reorganization. On June 21, 1999, we reincorporated in Delaware by merging
BlueStar Properties, Inc., a Tennessee corporation, into BlueStar Properties,
Inc., a Delaware corporation, with BlueStar Properties, Inc., a Delaware
corporation, surviving, The Delaware corporation subsequently changed its name
to BlueStar Communications Group, Inc. (collectively, including all
predecessors, the Company).
The Company has four wholly owned subsidiaries, BlueStar Communications, Inc.,
the operating business, BlueStar Networks, Inc. and BlueStar Networks of
Virginia, Inc., both of which maintain certain regulatory licenses, and Bluestar
Communications of the Southeast, Inc.
The Company is a provider of broadband communications and Internet services to
small- and medium-sized businesses in Tier II and Tier III cities. Our Internet
access services, which are packaged with Web hosting and e-mail, and our high
speed real private networking services are primarily provided using DSL
technology. In addition to DSL technology, the Company also offers other
low-cost broadband solutions including unbundled network element T1, or UNE T1,
in order to meet its customers' needs and maximize its network footprint.
The consolidated financial statements include the activity of BlueStar
Communications, LLC and BlueStar Properties, Inc., a Tennessee corporation, as
the predecessors to the Company. Revenue, Expense and Cash Flow information for
the period from inception (March 7, 1997) to December 31, 1997 were all less
than $6,700, and, as a result, a full set of consolidated financial statements
have not been included.
To date, the Company has incurred cash losses from operations and projects that
it will continue to incur losses in the near future, resulting in the need for
additional cash. The Company could incur additional losses as it continues to
expand its operating network. The Company intends to obtain cash from strategic
partners, existing and/or new stockholders or other resources. If such resources
are not obtained by the Company, then it could adversely affect the Company's
ability to operate at its current level.
(a) Basis of Presentation
The consolidated financial statements of the Company include the accounts of its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Revenue Recognition
Revenue related to service installation and sale of customer premise equipment
is recognized when equipment is delivered and installation is completed. Revenue
from monthly recurring service is recognized in the month the service is
provided. Although not applicable at December 31, 1998 or
F-7
<PAGE> 78
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1999, payments received in advance of providing services are
recorded as unearned revenue until such services are provided.
(c) Cash and Cash Equivalents
The Company considers highly liquid investments with initial maturities of less
than three months to be cash equivalents.
The Company had $8,994 in cash balance subject to withdrawal restrictions as a
condition of its $75,000 equipment leasing line of credit with its bank at
December 31, 1998 and no restrictions at December 31, 1999.
(d) Inventories
Inventories consist of telecommunications equipment that will be installed
at customer locations. Inventory is accounted for on a FIFO basis at the lower
of cost or market.
(e) Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7 years
Network equipment........................................... 5 years
Software.................................................... 3 years
Leasehold improvements...................................... Life of the lease
</TABLE>
Expenditures for maintenance and repairs are charged to expense as incurred,
whereas expenditures for renewals and betterments are capitalized. The Company
accounts for software costs in accordance with the American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The
statement requires capitalization of certain costs incurred in the development
of internal-use software, including external direct material and service costs.
(f) Collocation Fees
Collocation fees represent nonrecurring fees paid to traditional telephone
companies to secure central office space for location of certain Company
equipment. The fees are amortized over their estimated useful lives of five
years.
(g) Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that companies consider whether indicators of impairment of long-lived
assets held for use are present. If such indicators are present, companies
determine whether the sum of the estimated undiscounted future cash flows
attributable to such assets are less than their carrying amount, and if so,
companies recognize an impairment loss based on the excess of the carrying
amount of the assets over fair value. Accordingly, management periodically
evaluates the ongoing value of property and equipment and has determined that
there were no indications of impairment as of December 31, 1998 and 1999.
F-8
<PAGE> 79
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
(h) Advertising
The Company expenses the cost of advertising as incurred. Advertising expense
was approximately $30,192 and $898,653 for the years ended December 31, 1998 and
1999, respectively.
(i) Income Taxes
Prior to becoming BlueStar Properties, Inc., a Tennessee C corporation, on
September 28, 1998, the Company operated as an LLC under the provisions of the
Internal Revenue Code. Under LLC provisions, income or losses of BlueStar
Communications, LLC were reported by the members on their individual federal and
state income tax returns, and BlueStar Communications, LLC did not pay income
taxes or receive income tax benefits. The year-to-date loss of the LLC through
September 28, 1998, of $236,754 was netted against paid-in capital upon the
dissolution of the LLC on that date.
The Company accounts for income taxes under Statements of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
(j) Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations,
as permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123).
(k) Net Loss Per Share
Net loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS
128 requires the presentation of basic and diluted earnings per share (EPS).
Under the provisions of SFAS 128, basic net loss per share is computed by
dividing the net loss for the period by the weighted average number of shares of
common stock outstanding during the period.
Shares issued to employees subject to repurchase by the Company are not included
in the weighted average number of common shares outstanding for the period.
Diluted EPS is the same as basic EPS as all potentially dilutive securities are
antidilutive. Potential dilutive securities include common stock that would be
issued for the exercise of stock options and warrants (6,854,450 shares) the
expiration of restrictions on shares (3,657,157 shares) and the conversion of
preferred shares (20,522,043 common shares).
(l) Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during
F-9
<PAGE> 80
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
the reporting period. Actual results could differ from those estimates and such
differences may be material to the financial statements.
(m) Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, and debt
approximate fair value.
(n) Start-up Costs
In accordance with Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" (SOP 98-5), the Company has expensed all start-up costs to
date.
(o) Comprehensive Loss
The Company's comprehensive loss as defined by Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" has been the same as
reported losses since inception.
(p) Segment Information
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise", replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. The
Company operates in one segment: high-speed Internet access and data
communications services.
(q) Newly Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133 is effective for fiscal quarters
beginning after June 15, 2000. The impact of the adoption of SFAS 133 is not
expected to have a material impact on the Company's results of operations or
financial position.
(r) Concentration of Risk
Under a master operating lease agreement with Ascend Communications, now Lucent
Technologies, Inc. (Lucent), the Company had leased equipment worth $16,213,932
as of December 31, 1999. Lucent is the primary supplier of the Company's network
equipment. Lucent also provided the Company with a $1,000,000 line of working
capital in a transaction separate from the lease agreements.
F-10
<PAGE> 81
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash, cash equivalents and accounts receivable.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, as of December 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Furniture and fixtures................................... $ 2,815 $ 375,094
Network equipment........................................ 166,493 2,358,357
Software................................................. -- 2,434,854
Leasehold improvements................................... 1,806 102,145
Less accumulated depreciation............................ (28,402) (252,950)
-------- ----------
Property and equipment, net.............................. $142,712 $5,017,500
======== ==========
</TABLE>
(3) LEASE COMMITMENTS
The Company leases its office facilities and certain equipment from various
sources and leases its DSL equipment from Lucent as part of its $109.0 million
equipment lease line. The payment terms for each of the individual leases under
the Lucent Master Lease Agreement escalate during the first year and then remain
constant over the remaining life of the lease. Under the Master Lease Agreement,
the Company may lease equipment with a fair market value up to $30.0 million
immediately. The Company may lease additional equipment up to the full $109.0
million value so long as it maintains certain financial ratios defined in the
Master Lease Agreement. Once the Company has leased equipment with a fair market
value greater than $50.0 million, it must maintain $10.0 million of restricted
cash or cash equivalents on hand at all times. The total amount of the base rent
for all leases and subleases is being charged to expense on the straight-line
method over the terms of the leases. Rental expense for all operating leases and
subleases was $128,896 and $3,566,838 for the years ended December 31, 1998 and
1999, respectively. Future minimum commitments under noncancellable operating
lease agreements and building office space lease agreements outstanding at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
PAYMENTS
-----------
<S> <C>
2000........................................................ $ 9,219,241
2001........................................................ 9,689,065
2002........................................................ 5,427,773
2003........................................................ 490,726
2004........................................................ 205,572
-----------
Total minimum lease payments................................ $25,032,377
===========
</TABLE>
F-11
<PAGE> 82
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
(4) ACCRUED LIABILITIES
At December 31, 1998 and 1999, accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Accrued software payments................................... $ -- $ 995,537
Accrued compensation expenses............................... -- 764,482
Deferred lease payments..................................... 80,251 1,824,962
Other accruals.............................................. 89,065 1,060,795
-------- ----------
Accrued liabilities......................................... $169,316 $4,645,776
======== ==========
</TABLE>
(5) NOTE PAYABLE
In December 1999, the Company entered into a short-term note payable to an
equipment vendor in the amount of $541,526. Interest accrues at an annual rate
of 15%. Principal and interest payments of $58,704 are due monthly for the first
10 months of the year ended December 31, 2000.
(6) LONG-TERM DEBT
At December 31, 1998 and 1999, long-term debt consists of:
<TABLE>
<CAPTION>
INTEREST RATE 1998 1999
------------- --------- ---------
<S> <C> <C> <C>
Lucent loan dated August 1998.......................... 8.50% $ 500,000 $ 373,891
Lucent loan dated February 1999........................ 7.75 -- 450,205
Less current portion................................... (155,000) (320,922)
--------- ---------
Long-term debt......................................... $ 345,000 $ 503,174
========= =========
</TABLE>
The Company has a working capital line of credit agreement (the "Credit
Line") with Lucent allowing for borrowings up to $1,000,000. The balance is
secured by all of the assets of the Company. Each tranche is payable over
thirty-six months with interest only payments for the first six months and
principal and interest due over the remaining thirty months. The August 1998
tranche matures in August 2001 and the February 1999 tranche matures in February
2002. Amounts charged to interest expense for both loans was $14,166 and $65,486
during the years ended December 31, 1999 and 1998, respectively.
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company's certificate of incorporation, as amended, authorizes the issuance
of up to 25,000,000 shares of Redeemable Convertible Preferred Stock (Preferred
Stock), of which 12,345,003 and 8,177,040 shares are designated Series A and
Series B, respectively. In March 1999, the Company issued 12,345,003 shares of
redeemable convertible voting preferred stock designated as Series A Preferred
Stock at $0.49 per share. In August 1999 the Company issued 8,177,040 shares of
redeemable convertible voting Preferred Stock designated as Series B Preferred
Stock at $3.80 per share.
F-12
<PAGE> 83
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
The rights with respect to voting, dividends, liquidation and conversion of
the Preferred Stock are as follows:
Each share of Series A and B Preferred Stock has the same number of votes as the
number of shares of Common Stock into which that Series of Preferred Stock is
convertible.
Holders of Series A and B Preferred Stock are entitled to receive dividends at
the annual rate of $0.04 and $0.30 per share, respectively, when, as and if
declared by the Board of Directors. Such dividends are non-cumulative and
payable prior and in preference to any dividends for Common Stock declared by
the Board of Directors. There have been no dividends declared to date. As of
December 31, 1999, the preferred stock holders have a priority right on
dividends of $1,296,000.
In the event of any liquidation or winding up of the Company, including a merger
or sale of significant assets, the holders of Series A and B Preferred Stock
shall be entitled to receive prior and in preference to any distribution of any
of the assets of the Company to the holders of Common Stock an amount of $0.49,
the original Series A liquidation amount, and $3.80, the original Series B
liquidation amount, per share for each share of Series A and B Preferred Stock,
respectively, plus all declared but unpaid dividends, if any. If assets are
insufficient to permit payment in full of a particular series, then distribution
would occur in proportion to the original issue price of the respective series
of Preferred Stock held by such holders.
After paying the amounts due the holders of shares of Preferred Stock, the
remaining assets available for distribution shall be distributed to the holders
of Common Stock.
Each share of Preferred Stock is convertible into Common Stock at the option of
the holder or upon the consent of a majority of the aggregate votes of the
number of preferred shares then outstanding. The number of fully paid and
nonassessable shares of common stock into which each share of Series A and
Series B Preferred Stock may be converted shall be determined by dividing the
gross issue proceeds plus any declared but unpaid dividends by the original
issue price adjusted for the effect of any stock splits, dividends or other
distribution payable that entitles a holder of Common Stock to receive
additional shares without payment of any consideration for the additional
shares. The original issue price was $1.47 and $11.41 for each share of Series A
and Series B Preferred Stock, respectfully. At December 31, 1999, the adjusted
conversion prices, adjusted for the effect of the 3-for-1 stock split in the
form of a stock dividend, effective on October 29, 1999, were $0.49 and $3.80
for the Series A and Series B Preferred Stock, respectively.
Such conversion is automatic upon the effective date of an initial public
offering of Common Stock for which the gross proceeds to the Company are at
least $20,000,000 and the offering price per share is at least $3.80 per share.
A total of 20,522,043 shares of Common Stock have been reserved for issuance
upon the conversion of Preferred Stock.
F-13
<PAGE> 84
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
Each holder of Series A or Series B Preferred Stock may elect the Company to
redeem on the dates specified below, by giving not less than 60 days written
notice, up to a cumulative total of that percentage of the shares held by such
requesting holder as set forth below.
<TABLE>
<CAPTION>
CUMULATIVE PERCENTAGE OF
REDEMPTION DATE SHARES WHICH MAY BE REDEEMED
- --------------- ----------------------------
<S> <C>
March 17, 2006..................................... 25%
March 17, 2007..................................... 50
March 17, 2008..................................... 75
March 17, 2009..................................... 100
</TABLE>
(8) STOCKHOLDERS' DEFICIT
On October 29, 1999, the Company effected a 3-for-1 stock split in the form of a
stock dividend. The accompanying consolidated financial statements and all
references to Common Stock share and per share amounts including options and
warrants to purchase common stock have been retroactively restated to reflect
the stock split. Membership units in the LLC were not effected by the stock
split as it was not an organized entity at the time of the stock dividend.
During 1999 the Company enacted a change in the par value of its common stock
from $0.0025 to $.01 per share.
As a condition of the Series A Preferred Stock agreement entered into on March
17, 1999, three employees of the Company entered into Stock Restriction and
Special Payment Agreements with the Company. The agreements require tenure
conditions for the respective employees in order to fully vest in a portion of
their shares owned as of the date of the funding of the Series A Preferred
stock. Restricted shares are subject to a right of repurchase by the Company, at
a price of $0.049 per share, if the employee leaves the Company or is terminated
prior to vesting. This right of repurchase lapses ratably over a 48 month period
and an additional 25% of the original amount of restricted shares automatically
accelerates vesting for termination without cause. In addition, the agreements
also include provisions which accelerate vesting upon a change in control of the
Company. In connection with the termination of employment of one of these
employees subject to such agreements, the Company exercised its right of
repurchase of 2,021,025 shares of Common Stock at a price of $0.049 per share
and immediately retired these shares.
On September 22, 1998, the Company entered into a Personal Services Agreement
(PSA) with a consultant for the Company. Under the terms of the agreement, the
consultant was granted 3.5% stock ownership in the Company and ultimately
received additional ownership interest under the agreement. As of December 31,
1998, the consultant had received ownership in 5% of the outstanding Common
Stock. Compensation expense was recorded based on the 5% ownership for the year
ending December 31, 1998. On March 18, 1999, the consultant received 1,390,017
additional shares per the terms of the PSA. Immediately subsequent to receipt of
the shares, the consultant became an officer/employee of the Company and the PSA
was terminated. As a condition of the Series A Preferred Stock Purchase
Agreement, a portion of his shares of Common Stock are restricted and subject to
repurchase by the Company. Compensation expense related to the unrestricted
shares was recognized upon issuance. The value related to the 1,298,244
restricted shares was recorded as deferred compensation and is being amortized
over the vesting period.
On August 8, 1998, the Company entered into a Warrant Agreement with Lucent, in
relation to the working capital note payable. In consideration of this
commitment with a ten-year term, a warrant
F-14
<PAGE> 85
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
was issued to purchase shares of Common Stock at an exercise price of $0.33 per
share. The number of shares available to be exercised per the terms of the note
equaled the total principal amount advanced to the Company divided by ten,
adjusted for any stock splits. At December 31, 1998, the Company had borrowed
$500,000 and thus 150,000 shares were available to be issued under the warrant.
In February, 1999, the Company borrowed an additional $500,000 on the note and
the number of shares available to be issued under the warrant was increased to
300,000. As of December 31, 1999, there have been no exercises under the
warrant.
In July 1999, the Company entered into a Warrant Agreement with Boyle
Consolidated Communications, LLC (Boyle) as consideration for an exclusivity
license to install access equipment in certain Boyle properties. The Company
issued to Boyle a warrant to purchase 60,000 shares of Common Stock with an
exercise price of $1.67 per share. This warrant is immediately exercisable and
expires on the earlier of July 2004 or a breach of the agreement. The Company
may exercise the option to repurchase any unvested shares at a price of $1.67
per share. The shares vest ratably over a 36 month period. As of December 31,
1999, there have been no exercises under the warrant.
(9) STOCK OPTION PLAN
During 1998, the Company issued 360,000 Incentive Stock Options to certain
initial employees of the Company. From January 1999 to March 1999, the Company
issued an additional 366,000 incentive stock options to certain employees and
three consultants of the Company. All initial employee/consultant options were
issued at exercise prices greater than market value as determined by the Board
of Directors of the Company. The options expire in 2006. The Company recognized
compensation expense for the value of the 360,000 options issued to
non-employees.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1998
Granted................................................... 360,000 $0.33
Exercised................................................. -- --
Cancelled................................................. -- --
-------- -----
Outstanding at December 31, 1998............................ 360,000 0.33
Granted................................................... 366,000 0.38
Exercised................................................. (45,000) 0.33
Cancelled................................................. (135,000) 0.33
-------- -----
Outstanding at December 31, 1999............................ 546,000 $0.37
======== =====
Exercisable at December 31, 1999............................ 306,000 $0.36
======== =====
</TABLE>
In March 1999, the Company's Board of Directors (Board) adopted the 1999
Incentive Stock Option Plan (Plan). The Plan provides for the granting of stock
options to employees, directors or consultants of the Company. The Plan is
administered by the Compensation Committee of the Board and allows for the
granting of non-qualified (NQOs) and incentive stock options (ISOs) for purchase
up to an aggregate of 3,259,500 shares of Common Stock. The options are
exercisable at the discretion of the plan administrator, but generally are
exercisable upon vesting. ISOs generally vest over a four year period at a rate
of 25% after the first year of service, then ratably over the next
F-15
<PAGE> 86
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
thirty-six months. Certain employees of the Company have been granted ISOs which
vest at a rate of 12.5% after the first six months of service and then ratably
over the next 42 months. ISOs expire within 10 years after the date of grant. In
the event of a change of control of the Company, the Plan provides for
accelerated vesting based upon the terms evidenced in the Option grant,
generally 50.0% of the unvested options of the employee. All options under the
Plan have a ten year term.
In October 1999, the Board approved and adopted the 1999 Stock Option/Stock
Issuance Plan (New Plan). The New Plan provides for the granting of stock
options and stock purchase rights to employees, non-employee members of the
Board and consultants who provide services to the Company. At December 31, 1999,
7,615,500 shares of Common Stock were reserved for issuance under the Plan. The
Plan is administered by the Board and allows for the granting of non-statutory
options (NSOs) and incentive stock options (ISOs). The options are exercisable
at the discretion of the plan administrator, but generally are exercisable upon
vesting. In the event that shares are exercisable prior to vesting, the unvested
shares will be subject to repurchase by the Company. At December 31, 1999, no
shares were subject to repurchase by the Company. ISOs generally vest over a
four year period at a rate of 25% after the first year of service, then ratably
over the next thirty-six months. Certain employees of the Company have been
granted ISOs which vest at a rate of 12.5% after the first six months of service
and then ratably over the next 42 months. ISOs expire within 10 years after the
date of grant.
All grants under the Plan will be issued new certificates under the New Plan.
Grants issued above the amount authorized by the Plan have been approved by the
Board and are considered issued under the New Plan.
The Company accounts for options issued to employees under APB Opinion 25. The
options have been granted with exercise prices greater than or equal to the
market value of the common stock as determined by the Board of Directors of the
Company. The Company recognized compensation expense related to non-qualified
options issued to consultants under the Plan.
Plan and New Plan activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at January 1, 1999.............................. -- $ --
Granted................................................... 6,134,265 0.37
Exercised................................................. (153,315) 0.06
Cancelled................................................. (32,500) 0.57
--------- -----
Outstanding at December 31, 1999............................ 5,948,450 $0.38
========= =====
Exercisable at December 31, 1999............................ 308,543 $0.07
========= =====
</TABLE>
F-16
<PAGE> 87
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
The following table summarizes information about initial employee, Plan and New
Plan options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED AVERAGE
------------------------ WEIGHTED
REMAINING AVERAGE
AT CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES 12/31/99 LIFE IN YEARS PRICE 12/31/99 PRICE
- --------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05-0.10.............. 2,939,250 4.50 $0.07 299,043 $0.05
0.20-0.49............... 1,008,000 3.71 0.29 306,000 0.36
0.77.................... 2,547,200 5.00 0.77 9,000 0.77
--------- ---- ----- ------- -----
6,494,450 4.60 $0.38 614,043 $0.22
========= ==== ===== ======= =====
</TABLE>
SFAS 123 established new financial and reporting standards for stock-based
compensation plans. As the Company has adopted the disclosure-only provision of
SFAS 123, no compensation cost has been recognized for the Company's option plan
based on the fair value method. If the Company had recognized compensation cost
for the option grants based on the fair value method prescribed by SFAS 123, the
effects for the year ended December 31, 1998 would have been immaterial and the
Company's net loss would have increased by approximately $44,000 or $0.01 per
share for the year ended December 31, 1999. The above tables include 37,500
non-qualified options issued under the plan that are subject to repurchase by
the Company. The Company did not repurchase any of these shares as of December
31, 1999.
The fair value for these options was estimated at the date of grant using
the minimum value method allowed under SFAS 123. Under this method, the expected
life of the options used in this calculation was 2, 3, 5 and 6 years for options
vesting in 1, 2, 3 and 4 years, respectively, from the date of grant; the risk
free interest rate used ranged from 4.62% to 6.38%; and a volatility factor of
nil.
(10) INCOME TAXES
The components of the net deferred income tax asset (liability), at an
effective rate of 39%, as of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Non-current asset (liability):
Net operating loss carryforward........................ $ 186,811 $ 7,906,389
Tax over book depreciation............................. (9,008) (265,253)
Compensation accrual................................... -- 77,728
Other nondeductible accruals........................... -- 143,500
Capitalized start-up costs............................. 9,576 7,912
Long-term accrued liability............................ 34,735 --
--------- -----------
Total non-current asset............................. 222,114 7,870,276
Less valuation allowance............................... (222,114) (7,870,276)
--------- -----------
Net deferred tax asset.............................. $ -- $ --
========= ===========
</TABLE>
F-17
<PAGE> 88
BLUESTAR COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
SFAS 109 requires the Company to record a valuation allowance when it is
"more likely than not that some portion or all of the deferred tax assets will
not be realized." It further states that "forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years." The ultimate realization of the deferred
income tax assets depends on the Company's ability to generate sufficient
taxable income in the future. The Company has provided a valuation allowance at
December 31, 1998 and December 31, 1999. If the Company achieves sufficient
profitability in future years to use all of the deferred income tax asset, the
valuation allowance will be reduced through a credit to expense (increasing
retained earnings).
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $479,002 which expire in 2013 and $18,804,874
which expire in 2014.
(11) COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation that arise through the normal
course of business. Management believes that the resolution of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
There were no employment agreements in place as of December 31, 1999.
(12) SUBSEQUENT EVENTS
In January 2000, one of the employees subject to a Stock Restriction and
Special Payment Agreement resigned. The Company exercised its right to
repurchase the related outstanding restricted shares of 1,784,935 at a purchase
price of $0.049 per share. The total cost of repurchased options and severance
to the Company under the resignation agreement was approximately $231,000.
On January 28, 2000, the Company issued 318,471 shares of Series C
Preferred Stock for a total consideration of $5,000,000.
F-18
<PAGE> 89
(BLUESTAR LOGO)
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by Registrant in connection with the sale of
the common stock being registered hereby. All the amounts shown are estimates,
except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $52,800
NASD fee.................................................... 20,500
Nasdaq National Market listing fee.......................... *
Blue sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent fees......................................... *
Miscellaneous............................................... *
--------
Total..................................................... $ *
========
</TABLE>
- -------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any persons made a party to any action by reason of the fact
that he is or was a director, officer, employee or agent of Registrant may and,
in certain cases, must be indemnified by Registrant against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorneys' fees), if in either type of action, he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Registrant. This indemnification does not apply, in a derivative action, to
matters which it is adjudged that the director, officer, employee or agent is
liable to Registrant, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article of our Second Amended and Restated Certificate of
Incorporation provides that no director shall be liable to Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by the DGCL.
Reference is made to Section 7(b) of the underwriting agreement to be filed
as Exhibit 1.1 hereto, pursuant to which the underwriters have agreed to
indemnify Registrant's officers and directors against certain liabilities under
the Securities Act of 1933.
Registrant intends to enter into Indemnification Agreements with each
director, a form of which is filed as Exhibit to this
registration statement. Pursuant to such agreements, we will be obligated, to
the extent permitted by applicable law, to indemnify such directors against all
expenses, judgments, fines and penalties incurred in connection with the defense
or settlement of any
II-1
<PAGE> 91
actions brought against them by reason of the fact that they were directors of
Registrant or assumed certain responsibilities at the direction of Registrant.
Registrant has purchased directors and officers liability insurance to limit its
exposure to liability for indemnification of directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 17, 1997, Registrant has issued unregistered securities to a
limited number of entities as described below. These issuances were deemed
exempt from registration under the Securities Act in reliance on Rule 701 or
Section 4(2) promulgated thereunder. The following share and dollar amounts are
adjusted to reflect the Registrant's 3-for-1 split effective October 29, 1999.
1. In August 1998, BlueStar Properties, Inc., a Tennessee corporation,
issued a warrant to purchase up to 300,000 shares of its common
stock at an exercise price of $0.33 to Ascend Communications, Inc.
2. In June 1999, Registrant issued 2,042,500 shares of common stock to
its co-founders, Fredjoseph Goldner, Scott Kozicki and Richard
Burtner, upon the merger of Registrant with and into its
predecessor, BlueStar Properties, Inc, a Tennessee corporation.
These shares were issued upon the conversion of Messrs. Goldner,
Kozicki and Burtner's shares in BlueStar Properties, Inc, a
Tennessee corporation, into shares of Registrant's common stock.
3. In July 1999, Registrant issued a warrant to purchase up to 60,000
shares of common stock at an exercise price of $1.67 to Boyle
Consolidated Communications, LLC.
4. In March 1999, Registrant issued 12,345,003 shares of Series A
Convertible Preferred Stock for $0.49 per share, for an aggregate
purchase price of $6,000,000.51. The following stockholders
purchased our Series A convertible preferred stock: Crosspoint
Venture Partners 1997, BSY Associates, LLC, Tim Burtner, the Richard
L. Burtner Profit Sharing (Keough) Plan and Fred Goldner, M.D.
5. In August 1999, Registrant issued 8,177,040 shares of Series B
Convertible Preferred Stock for $3.80 per share, for an aggregate
purchase price of $31,100,008.20. The following stockholders
purchased our Series B convertible preferred stock: Crosspoint
Venture Partners 1997, Crosspoint Venture Partners LS 1997,
Crosspoint Venture Partners LS 1999, Gramercy BlueStar LLC, ATGF II,
Vertex Capital II, LLC, Christopher Lord, William Slattery, Ralph H.
Cechettini 1995 Trust, Pivotal Partners, L.P., James Stableford, BSP
Associates II, LLC, TY Investments, L.P. and Robert Hawk.
6. Through December 31, 1999, Registrant has issued and sold 160,815
shares of its Common Stock to directors, employees and consultants
upon the exercise of options granted under its 1999 Stock Option
Plan at a weighted average exercise price of $ .
7. From time to time Registrant has granted stock options to employees,
directors and consultants.
II-2
<PAGE> 92
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Underwriting Agreement
3.1* -- Form of Second Amended and Restated Certificate of
Incorporation of BlueStar Communications Group, Inc.
3.2* -- Form of Amended and Restated Bylaws of BlueStar
Communications Group, Inc.
4.1* -- Specimen certificate for shares of common stock.
4.2 -- Warrant Agreement, dated as of August 8, 1998, by and
between BlueStar Properties, Inc. and Ascend Communications,
Inc.
4.3 -- Warrant to Purchase Shares of Common Stock, dated as of July
28, 1999, by and between BlueStar Properties, Inc. and Boyle
Consolidated Communications, Inc.
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP.
10.1* -- Form of Indemnity Agreement between BlueStar Communications
Group, Inc. and each of its directors and executive
officers.
10.2* -- Amended and Restated Registration Rights Agreement, as
amended, dated January , 2000, by and among Registrant and
the Investors named therein.
10.3 -- Stock Restriction and Special Payment Agreement dated March
17, 1999 between Richard Burtner and BlueStar Properties,
Inc.
10.4 -- Stock Restriction and Special Payment Agreement dated March
17, 1999 between Fredjoseph Goldner and BlueStar Properties,
Inc.
10.5 -- Master Lease Agreement No. 2, dated May 28, 1999 between
BlueStar Communications, Inc. and Ascend Credit Corporation.
10.6 -- Master Lease Agreement No. 1, dated as of July 29, 1998
between BlueStar Communications, LLC and Ascend Credit
Corporation.
10.7 -- Secured Promissory Note dated August 8, 1998, from BlueStar
Communications, LLC in favor of Acsend Communications, Inc.
10.8 -- Lease of corporate offices dated December 31, 1999, by and
between BlueStar Properties, Inc. and Crescent Resources,
Inc.
10.9 -- Lease of corporate offices dated April 16, 1999 by and
between LC Tower, L.L.C. and BlueStar Communications, Inc.
10.10* -- Sublease of corporate offices dated December 1, 1999 by and
between Bank of America National Association and BlueStar
Communications, Inc.
23.1* -- Consent of Brobeck, Phleger & Harrison LLP (filed with
Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment
(b) Financial Statement Schedules.
All schedules have been omitted because they are inapplicable or the
information is provided in the Registrant's financial statements, including the
notes thereto.
II-3
<PAGE> 93
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, officers and controlling persons
pursuant to the DGCL, our Certificate of Incorporation or our Bylaws, the
underwriting agreement or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by one of our directors, officers
or controlling persons 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 hereunder, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
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 shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in Nashville, Tennessee, on January 28,
2000.
BLUESTAR COMMUNICATIONS GROUP, INC.
By: /s/ ROBERT E. DUPUIS
---------------------------------------
Robert E. Dupuis
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Robert E. Dupuis and Richard L. Burtner,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and to sign any
registration statement for the same offering covered by this registration
statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, 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, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their 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
--------- ----- ----
<C> <S> <C>
/s/ ROBERT E. DUPUIS President, Chief Executive Officer January 28, 2000
- --------------------------------------------- and Chairman of the Board
Robert E. Dupuis (principal executive officer)
/s/ RICHARD L. BURTNER Chief Financial Officer (principal January 28, 2000
- --------------------------------------------- financial and accounting officer)
Richard L. Burtner
/s/ JOHN W. GERDELMAN Director January 28, 2000
- ---------------------------------------------
John W. Gerdelman
/s/ FREDJOSEPH GOLDNER Director January 28, 2000
- ---------------------------------------------
Fredjoseph Goldner
</TABLE>
II-5
<PAGE> 95
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHARLES J. MCMINN Director January 28, 2000
- ---------------------------------------------
Charles J. McMinn
/s/ RICHARD SHAPERO Director January 28, 2000
- ---------------------------------------------
Richard Shapero
</TABLE>
II-6
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Underwriting Agreement
3.1* -- Form of Second Amended and Restated Certificate of
Incorporation of BlueStar Communications Group, Inc.
3.2* -- Form of Amended and Restated Bylaws of BlueStar
Communications Group, Inc.
4.1* -- Specimen certificate for shares of common stock.
4.2 -- Warrant Agreement, dated as of August 8, 1998, by and
between BlueStar Properties, Inc. and Ascend Communications,
Inc.
4.3 -- Warrant to Purchase Shares of Common Stock, dated as of July
28, 1999, by and between BlueStar Properties, Inc. and Boyle
Consolidated Communications, Inc.
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP.
10.1* -- Form of Indemnity Agreement between BlueStar Communications
Group, Inc. and each of its directors and executive
officers.
10.2* -- Amended and Restated Registration Rights Agreement, as
amended, dated January , 2000, by and among Registrant and
the Investors named therein.
10.3 -- Stock Restriction and Special Payment Agreement dated March
17, 1999 between Richard Burtner and BlueStar Properties,
Inc.
10.4 -- Stock Restriction and Special Payment Agreement dated March
17, 1999 between Fredjoseph Goldner and BlueStar Properties,
Inc.
10.5 -- Master Lease Agreement No. 2, dated May 28, 1999 between
BlueStar Communications, Inc. and Ascend Credit Corporation.
10.6 -- Master Lease Agreement No. 1, dated as of July 29, 1998
between BlueStar Communications, LLC and Ascend Credit
Corporation.
10.7 -- Secured Promissory Note dated August 8, 1998, from BlueStar
Communications, LLC in favor of Acsend Communications, Inc.
10.8 -- Lease of corporate offices dated December 31, 1999, by and
between BlueStar Properties, Inc. and Crescent Resources,
Inc.
10.9 -- Lease of corporate offices dated April 16, 1999 by and
between LC Tower, L.L.C. and BlueStar Communications, Inc.
10.10* -- Sublease of corporate offices dated December 1, 1999 by and
between Bank of America National Association and BlueStar
Communications, Inc.
23.1* -- Consent of Brobeck, Phleger & Harrison LLP (filed with
Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment
II-7
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND THE UNITS ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE LLC UNITS
August 8, 1998
THIS WARRANT CERTIFIES THAT, for good and valuable consideration,
ASCEND COMMUNICATIONS, INC. ("Holder") is entitled to purchase the Initial
Number of paid and nonassessable units (the "Units") of BLUESTAR COMMUNICATIONS,
LLC (the "Company") at the price of One Dollar ($1.00) per Unit (the "Warrant
Price"), as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant. The
Initial Number at any time is the number equal to the total principal amount of
the advances (the "Aggregate Principal") made under the $1,000,000 Secured
Promissory Note, dated as of the date hereof, issued by the Company to the order
of Holder (the "Note"); provided, however, that, upon the Company conversion
from a limited liability company to a corporation, this Warrant shall be
substituted for a new warrant issued by the Company which entitles Holder to
purchase at the Warrant Price the number of shares of common stock of the
Company determined by dividing the Aggregate Principal by the then Warrant Price
and multiplying The resulting sum by one tenth.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Units being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Units determined by dividing (a) the aggregate Fair
Market Value of the Units issuable upon exercise of this Warrant minus the
aggregate Warrant Price of such Units by (b) the Fair Market Value of one Unit.
The Fair Market Value of the Units shall be determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Units are traded in a public market, the
Fair Market Value of the Units shall be the closing price of the Units reported
for the business day
1
<PAGE> 2
immediately before Holder delivers its Notice of Exercise to the Company. If the
Units are not traded in a public market, the Managers of the Company shall
determine Fair Market Value in its reasonable good faith judgment.
1.4 No Rights as a Member. This Warrant does not entitle Holder to any
voting rights as a shareholder of the Company prior to the exercise hereof.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder a letter
indicating Holder's interest in the Company and, if this Warrant has not been
fully exercised or converted and has not expired, a new Warrant representing the
Units not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company,
and, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Merger or Consolidation of the Company. Upon the closing of any
Acquisition, the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Units issuable upon exercise of the
unexercised portion of this Warrant as if such Units were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.8 Automatic Exercise. If, as of the last day of the term hereof, this
Warrant has not been fully exercised, then as of such date this Warrant shall be
automatically converted, in full, in accordance with Section 1.2, without any
action or notice by the Holder.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Unit Distribution. If the Company distributes Units pro-rata to
Members for no consideration, then upon exercise of this Warrant, for each Unit
acquired, Holder shall receive, without cost to Holder, the total number and
kind of securities to which Holder would have been entitled had Holder owned the
Units of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Units if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or other
event.
2
<PAGE> 3
The Company or its successor shall promptly issue to Holder a new Warrant for
such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this section shall
similarly apply to successive reclassifications, exchanges, substitutions, or
other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Units are
combined or consolidated, by reclassification or otherwise, into a lesser number
of Units, the Warrant Price shall be proportionately increased and the number of
Units acquirable hereunder shall be proportionately decreased.
2.4 No Impairment. The Company shall not, by amendment of its Operating
Agreement or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article 2 against impairment. If the Company takes any action
affecting the Units or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Units issuable upon exercise of this Warrant
shall be adjusted upward in such a manner that the aggregate Warrant Price of
this Warrant is unchanged.
2.5 Fractional Units. No fractional Units shall be issuable upon
exercise or conversion of the Warrant and the number of Units to be issued shall
be rounded down to the nearest whole Unit. If a fractional Unit interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional Unit interest by paying Holder an amount computed by multiplying the
fractional interest by the Fair Market Value of a full Unit.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price and the number of Units acquirable hereunder, the Company, at its expense,
shall promptly compute such adjustment and furnish Holder with a certificate of
its Chief Financial Officer setting forth such adjustment and the facts upon
which such adjustment is based. The Company shall, upon written request, furnish
Holder a certificate setting forth the Warrant Price in effect on the date
thereof and the number of Units acquirable hereunder on such date and the series
of adjustments leading to such Warrant Price and Unit number.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Units which may be issued upon the exercise of
the purchase
3
<PAGE> 4
right represented by this Warrant, shall, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable, and free of any liens and
encumbrances except for restrictions on transfer provided for herein or under
applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to distribute Units pro-rata to its members; (b) to offer for subscription pro
rata to the holders of any class or series of its stock any additional Units of
any class or series or other rights; (c) to effect any reclassification or
recapitalization of common stock; or (d) to merge or consolidate with or into
any other corporation, or sell, lease, license, or convey all or substantially
all of its assets, or to liquidate, dissolve or wind up, then, in connection
with each such event, the Company shall give Holder (1) prompt prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of Units will be entitled thereto) or for determining rights to vote, if
any, in respect of the matters referred to in (c) and (d) above; and (2) in the
case of the matters referred to in (c) and (d) above, prompt prior written
notice of the date when the same will take place (and specifying the date on
which the holders of Units will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event).
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Units, the Company shall deliver to the Holder:
(a) as soon as practicable after the end of each calendar month,
and in any event within thirty (30) days thereafter, an unaudited balance sheet
of the Company as of the end of such month, cash flow statements and an
unaudited statement of operations of the Company for the portion of the Fiscal
Year ended with such month prepared and certified by the chief financial officer
of the Company, subject, however, to the exclusion of footnotes and to normal
year-end audit adjustments, and a comparison of such statements to the Company'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 the Company, which report shall state that such
financial statements fairly present the Company's financial position at the end
of such Fiscal Year;
(c) as soon as available, and in any event, prior to the
commencement of each Fiscal Year, a budget and business plan for the Company for
such Fiscal Year;
(d) promptly upon their becoming available, one copy of each
report, notice or proxy statement sent by the Company to its Members generally
and of each regular or periodic report or registration statement, prospectus or
written communication (other than transmittal letters) filed by the Company with
the Securities and Exchange Commission or any securities exchange on which the
Company's securities are listed; and
4
<PAGE> 5
(e) with reasonable promptness, such other information as from time
to time may be reasonably requested by Holder.
The Company's delivery obligations under this section shall terminate upon the
Company becoming a Reporting Company.
ARTICLE 4. MISCELLANEOUS.
4.1 Term. The term of this Warrant shall commence on the date hereof
and terminate on at 5:00 p.m., Pacific Time on the tenth (10) anniversary of the
date hereof.
4.2 Legends. This Warrant and the Units shall be imprinted with a
legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Units issuable upon exercise of this Warrant may not be transferred or assigned
in whole or in part without compliance with applicable federal and state
securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, as reasonable requested by the Company).
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer this Warrant or the Units issuable upon exercise of this
Warrant by giving the Company notice setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee. Unless the Company is a
Reporting Company, it shall have the right to refuse to transfer this Warrant or
the Units to any person who directly competes with the Company and/or its
subsidiaries.
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished by the Company or the
Holder, as the case may be, in writing by the Company or the Holder from time to
time.
5
<PAGE> 6
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Remedies. Company stipulates that the remedies at law of Holder in
the event of any default or threatened default by Company in the performance of
or compliance with any of the terms of this Warrant are not and will not be
adequate to the fullest extent permitted by law, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
4.9 No Original Issue Discount. The Company and the Holder hereby
acknowledge and agree that this is part of an investment unit within the meaning
of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended, which
includes the loans made by the Holder to the Company pursuant to the Secured
Promissory Note, dated as of the date hereof (the "Loan"). The Company and the
Holder further agree as between the Company and the Holder that the fair market
value of this Warrant is equal to Five Hundred Dollars ($500) and that, pursuant
to Treas. Reg. Sub. 1.1273-2(h), Five Hundred Dollars ($500) of the issue price
of the investment unit shall be allocable to this Warrant and the balance shall
be allocable to the Loan. The Company and the Holder agree to prepare their
federal income tax returns in a manner consistent with the foregoing agreement
and, pursuant to Treas. Reg. Sub. 1.1273, the original issue discount on the
loan shall be considered to be zero.
4.10 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
4.11 Conversion. This Warrant is issued in connection with the
conversion of the Company into a corporation, this Warrant shall be exchanged
for a new warrant which is substantially identical to the terms hereof, but
which also includes registration rights provisions reasonably acceptable to
Holder; provided that the final registration rights shall be determined in
consultation with any underwriters employed by the Company.
6
<PAGE> 7
BLUESTAR COMMUNICATIONS, LLC.
By /s/ Fredjoseph Goldner
Title: CEO/President
REVIEWED AND AGREED TO:
ASCEND COMMUNICATIONS, INC.
By /s/Michael F. Ashby
Title: CFO
7
<PAGE> 8
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ___________ Units of
Bluestar Communications, LLC pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such Units in full.
2. The undersigned hereby elects to convert the attached Warrant into
Units in the manner specified in the Warrant. This conversion is exercised with
respect to _____________________ of the Units covered by the Warrant.
[Strike paragraph 1 that does not apply.]
3. Please issue a certificate or certificates representing said Units
in the name of the undersigned or in such other name as is specified below:
-------------------------------------
(Name)
-------------------------------------
-------------------------------------
(Address)
4. The undersigned represents it is acquiring the Units solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
--------------------------------
(Signature)
-----------------------
(Date)
8
<PAGE> 1
EXHIBIT 4.3
THIS WARRANT AND THE UNITS ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT
TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE COMMON STOCK
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, Boyle
Consolidated Communications, L.L.C., a Tennessee limited liability company
("Holder") is irrevocably (subject to Article 3 and Section 5.1 hereof) entitled
to purchase up to Twenty Thousand (20,000) fully paid and nonassessable shares
of BLUESTAR PROPERTIES, INC. (the "Company") $.01 par value common stock (the
"Shares") at the price of Five Dollar ($5.00) per Share (the "Warrant Price"),
as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
a duly executed Notice of Exercise in substantially the form attached as
APPENDIX 1 to the principal office of the Company. Holder shall also deliver to
the Company a check for the aggregate Warrant Price for the Shares being
purchased.
1.2 No Rights as a Shareholder. This Warrant does not entitle Holder to
any voting rights as a Shareholder of the Company prior to the exercise hereof.
1.3 Delivery of Certificate and New Warrant. Promptly after Holder
exercises this Warrant, the Company shall deliver to Holder a certificate for
the Shares acquired and, if this Warrant has not been fully exercised and has
not expired, a new Warrant representing the Shares not so exercised.
1.4 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company,
and, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.5 Merger or Consolidation of the Company. Upon the closing of any
Acquisition, the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be
<PAGE> 2
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Unit Distribution. If the Company distributes Shares pro-rata to
Members for no consideration, then upon exercise of this Warrant, for each Share
acquired, Holder shall receive, without cost to Holder, the total number and
kind of securities to which Holder would have been entitled had Holder owned the
Shares of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
of this Warrant, the number and kind of securities and property that Holder
would have received for the Shares if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or other
event. The Company or its successor shall promptly issue to Holder a new Warrant
for such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this section shall
similarly apply to successive reclassifications, exchanges, substitutions, or
other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of Shares, the Warrant Price shall be proportionately increased and the number
of Shares acquirable hereunder shall be proportionately decreased.
2.4 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole number. If a fractional Share
interest arises upon any exercise of this Warrant, the Company shall eliminate
such fractional Share by paying Holder an amount computed by multiplying the
fractional share by the fair market value of a full Share.
ARTICLE 3. REPURCHASE RIGHTS OF THE COMPANY
3.1 Repurchase Rights of Company. Holder hereby grants to the Company
certain repurchase rights with respect to the Shares (the "Repurchasable
Shares").
3.2 Right of Repurchase. In the event this Warrant or any portion
hereof is exercised by Holder or any assignee of Holder, following the earlier
of the (i) termination
2
<PAGE> 3
of any Telecommunications Access Agreement by and among BlueStar Communications,
Inc (an affiliate of the Company), Boyle Investment Company and the owners of
certain buildings managed by Boyle Investment Company of even date herewith (the
"Agreements") or (ii) the exclusivity provision set forth in any such Agreement,
the Company shall have the right, but not the obligation, and option to
repurchase all or any portion of the Repurchasable Shares at a purchase price
per share of $5.00 (as may be adjusted pursuant to Article 2 of this Warrant).
Any assignee of Holder shall be bound by the terms of this Section 3.
3.3 Non-repurchasable Shares. On the last day of each full calendar
month following the execution of this Warrant and the Agreements, provided all
the Agreements and all the exclusivity provision contained therein shall be in
full force and effect, 2.778% of the Repurchasable Shares shall become
"Non-repurchasable Shares."
3.4 Exercise of Repurchase Rights. The Company may exercise its
repurchase rights under this Section 3 by giving written notice to Holder. The
notice shall specify the number of Repurchasable Shares that the Company
desires to repurchase and setting a date and location for the closing of the
repurchase. This notice shall be given within 90 days following the date of
termination of the Agreement or the exclusivity provision therein. Upon the
giving of notice, Holder shall be obligated to sell to the Company, and the
Company shall be obligated to purchase from the Holder, the number of
Repurchasable Shares specified in the notice.
ARTICLE 4. REPRESENTATIONS AND COVENANTS OF THE COMPANY
4.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
4.2 Notice of Certain Events. If the Company proposes at any time (a)
to distribute Shares pro-rata to its shareholders; (b) to offer for subscription
pro rata to the holders of any class or series of its stock any additional
Shares of any class or series or other rights; (c) to effect any
reclassification or recapitalization of common stock; or (d) to merge or
consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up, then, in connection with each such event, the Company shall give Holder (1)
prompt prior written notice of the date on which a record will be taken for such
dividend, distribution, or subscription rights (and specifying the date on which
the holders of Shares will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) and (d) above; and
(2 in the case of the matters referred to in (c) and (d) above, prompt prior
written notice of the date when the same will take place (and specifying the
3
<PAGE> 4
date on which the holders of Shares will be entitled to exchange their common
stock for securities or other property deliverable upon the occurrence of such
event).
ARTICLE 5. INVESTMENT REPRESENTATIONS.
5.1 Holder represents and warrants to Company that:
A. The grant of this Warrant and the purchase and sale of Shares upon the
exercise thereof is intended to be exempt from registration under the
Securities Act of 1933, as amended ("1933 Act") and from registration under
the Tennessee Securities Act of 1980, as amended ("1980 Act") by virtue of
certain exemptions therein provided. Holder also understands that this
Warrant and the purchase and sale of Shares upon the exercise thereof is
subject to the restrictions on transferability contained in Rule 144 of the
1933 Act.
B. Holder is acquiring this Warrant solely for his own account and for
investment purposes only, with no view to any resale or distribution of the
Interest, in whole or in part, in violation of the 1933 Act or the 1980
Act, and no other person has any direct or indirect beneficial interest in
such Warrant.
C. Holder understands the Warrant and the purchase and sale of Shares upon
the exercise thereof have not been registered under the 1933 Act, the 1980
Act, or any other securities laws in reliance upon exemptions from the
registration requirements. Holder understands and agrees that the Warrant
and the purchase and sale of Shares upon the exercise thereof must be held
indefinitely unless the sale thereof is subsequently registered under
applicable securities laws or unless an exemption from such registration is
available. Holder is also aware that neither the Securities and Exchange
Commission nor any securities commission of any state nor any other
regulatory authority has approved or disapproved or passed upon the merits
of Holder's purchase of the Warrant and the purchase and sale of Shares
upon the exercise thereof.
D. Holder is intimately familiar with the operations and financial
condition of the Company. Holder has been provided with full and complete
access to all contracts, documents, records, and books pertaining to the
Company, its organization, corporate existence, business, and operations
which are or have been deemed material in evaluating Holder's purchase of
the Shares upon the exercise of the Warrant.
4
<PAGE> 5
E. Holder has had a reasonable opportunity to ask questions of, and receive
answers from, responsible persons and officers acting on behalf of the
Company concerning the business, operations, and prospects of the Company
and the Warrant and the purchase and sale of Shares upon the exercise
thereof, and all such questions have been answered to Holder's full
satisfaction. Holder has received a copy of the Company's business plan and
understands the risks involved in investing in the Company.
F. No oral or written representations other than as expressly set forth
herein have been made to Holder or by or on behalf of the Company or any
person in connection with Holder's purchase of the Shares upon the exercise
of the Warrant.
G. The opportunity to purchase the Shares upon the exercise of the Warrant
was made to Holder privately and not as a result or as a consequence of any
advertisement, article, notice, circular, letter, or other communication
published in any newspaper, magazine, or similar media, or transmitted over
broadcast or cable television, or radio.
H. The opportunity to purchase the Shares upon the exercise of the Warrant
was made available to Holder through direct communication by Seller and not
through or by way of any intermediary, broker, or dealer in securities.
I. Holder has adequate means of providing for its current needs and all
foreseeable personal contingencies, is able to bear the substantial
economic risks of his purchase of the Shares upon the exercise the Warrant
for an indefinite period of time, has no need for liquidity in such
investment, and could afford a complete loss of such investment.
J. Holder's overall commitment to investments which are not readily
marketable is not disproportionate to Holder's net worth and Holder's
overall commitment to such investments which are not liquid will not become
excessive as a result of this purchase of the Shares upon the exercise of
the Warrant.
K. Holder has, or has employed persons with, sufficient knowledge and
experience in financial, tax, and business matters to enable him to utilize
the information made available to him in connection with his purchase of
the Shares upon the exercise of the arrant and to evaluate the merits and
risks of his purchase and to make an informed decision in that regard.
L. Holder is not relying on the Company with respect to any tax
considerations or business or economic forecasts relating to Holder's
purchase of the Shares upon the exercise of the Warrant.
5
<PAGE> 6
M. Holder understands that his purchase of the Shares involves a number of
significant risks of loss and may be considered to be speculative. Holder
recognizes and understands that there are no assurances that the Company
will be profitable or otherwise successful at any time in the future.
N. Holder is an accredited investor as that term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended.
O. The foregoing representations, warranties, and agreements are, and shall
be and remain, true and correct in all respects on and as of the date
hereof and as of the actual date the Warrant is are distributed to Holder.
ARTICLE 6. MISCELLANEOUS.
6.1 Term. The term of this Warrant shall commence on the date hereof and
shall terminate on the earlier to occur of (i) 5:00 p.m., Central Time on the
fifth (5th) anniversary of the date hereof or (ii) a breach of the
Telecommunications Access Agreement of even date herewith by and between
BlueStar Communications, Inc. and Holder.
6.2 Legends. This Warrant and the underlying Shares issuable upon exercise
hereof shall be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
6.3 Compliance with Securities Laws on Transfer. This Warrant may be
transferred only with the prior written consent of the Company, which consent
may be withheld in the sole and absolute discretion of the Company. In the event
the Company consents to any such transfer, this Warrant and the Shares issuable
upon exercise of this Warrant may not be transferred or assigned in whole or in
part without compliance with applicable federal and state securities laws by the
transferor and the transferee (including, without limitation, the delivery of
investment representation letters and legal opinions reasonably satisfactory to
the Company, as reasonably requested by the Company).
6.4 Transfer Procedure. Subject to the provisions of Section 5.3, Holder
may transfer this Warrant or the Shares issuable upon exercise of this Warrant
by giving the Company notice setting forth the name, address and taxpayer
identification number of the
6
<PAGE> 7
transferee and surrendering this Warrant to the Company for reissuance to the
transferee. The Company shall have the right to refuse to transfer this Warrant
or the Shares to any person who directly competes with the Company and/or its
subsidiaries. Any transferee of any portion of this Warrant or the Shares
issuable upon exercise of this Warrant shall irrevocably appoint Boyle
Investment Company as its irrevocable proxy for the purpose of voting on all
matters subject to the vote of the shareholders of the Company. This appointment
of proxy shall be deemed to be coupled with an interest.
6.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished by the Company or the
Holder, as the case may be, in writing by the Company or the Holder from time to
time.
6.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by both
parties.
6.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all reasonable
attorneys' fees incurred in such dispute.
6.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Tennessee, without giving effect to its
principles regarding conflicts of law.
BLUESTAR PROPERTIES, INC.
By: /s/ R.L. Burtner
Title: CFO
Name: R.L. Burtner
REVIEWED AND AGREED TO:
BOYLE CONSOLIDATED COMMUNICATIONS, L.L.C.
By: /s/ J.B. Boyle, Jr.
Title: Chief Manager
Name: J.B. Boyle, Jr.
7
<PAGE> 8
APPENDIX 1
NOTICE OF EXERCISE
The undersigned hereby elects to purchase __________ shares of $.01 par
value common stock (the "Shares") of BlueStar Properties, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such Shares in full.
Please issue a certificate or certificates representing said Shares in
the name of the undersigned or in such other name as is specified below:
- -------------------------------------
(Name)
- -------------------------------------
- -------------------------------------
(Address)
The undersigned represents it is acquiring the Shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
(Signature)
- --------------------
(Date)
8
<PAGE> 1
EXHIBIT 10.3
STOCK RESTRICTION
AND SPECIAL PAYMENT AGREEMENT
RICHARD BURTNER
This Stock Restriction and Special Payment Agreement (this
"Agreement"), dated as of March 17, 1999, is by and between BlueStar Properties,
Inc., a Tennessee corporation (the "Company"), with its principal executive
offices at 131 Second Avenue North, Nashville, Tennessee 37201, and Richard
Burtner (the "Stockholder"), an individual residing at 6337 Johnson Chapel Road,
Brentwood, Tennessee 37027.
The Company proposes to enter into a Series A Preferred Stock Purchase
Agreement with certain investors, of even date herewith (the "Series A Purchase
Agreement"), pursuant to which such investors will purchase certain securities
from the Company. The execution and delivery of this Agreement by the Company
and the Stockholder is a condition precedent to the transactions contemplated by
the Series A Purchase Agreement, which the Company and the Stockholder believe
will benefit the Company and will also benefit the Stockholder, in his capacity
as a stockholder of the Company.
Accordingly, to induce the Company and the proposed investors to enter
into and consummate the transactions contemplated by the Series A Purchase
Agreement, the Company and the Stockholder agree as follows:
1. REPURCHASE RIGHTS OF THE COMPANY. The Stockholder currently holds an
aggregate of 665,766 shares (including any shares issued in respect thereof by
reason of any stock dividend, stock split, recapitalization, or other similar
event affecting such shares occurring after the date hereof) (the "Total
Shares") of the Company's Common Stock, $0.01 par value per share ("Common
Stock"). The Stockholder hereby grants to the Company certain repurchase rights
with respect to 65% of the Total Shares (i.e., 432,747 shares of Common Stock)
(the "Restricted Shares"), as set forth in this Section 1.
(A) ESCROW. To ensure the availability for delivery of the
Stockholder's Repurchasable Shares (as defined below in Section 1(c) hereof)
upon repurchase by the Company pursuant to the Repurchase Option (as defined
below in Section 1(b) hereof), the Stockholder shall, upon execution of this
Agreement, deliver and deposit with the corporate secretary of the Company as
escrow agent (the "Escrow Holder") the share certificate(s) representing the
Repurchasable Shares, together with a stock assignment duly endorsed in blank,
in the form attached hereto as Exhibit A-1. The Repurchasable Shares and stock
assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow
Instructions of the Company and Stockholder in the form attached hereto as
Exhibit A-2, until such time as the number of Repurchasable Shares is zero. [As
a further condition to the Company's obligations under this Agreement, the
Company may require the spouse of Stockholder, if any, to execute and deliver to
the Company a Consent of Spouse in the form attached hereto as Exhibit A-3.]
<PAGE> 2
Subject to the terms hereof, the Stockholder shall have all the
rights of a shareholder with respect to the Restricted Shares while they are
held in escrow, including without limitation, the right to vote the Restricted
Shares and to receive any cash dividends declared thereon. If, from time to time
during the period of time in which there are Repurchasable Shares, there is (i)
any stock dividend, stock split, combination of shares or other similar event
affecting the Restricted Shares, or (ii) any merger or sale of all or
substantially all of the assets or other acquisition of the Company, any and all
new, substituted or additional securities to which the Stockholder is entitled
by reason of the Stockholder's ownership of the Restricted Shares shall be
immediately subject to this escrow, deposited with the Escrow Holder and
included thereafter as "Restricted Shares," "Repurchasable Shares" and
"Non-Repurchasable Shares," as the case may be and as applicable, for purposes
of this Agreement and the Repurchase Option.
(B) RIGHT TO REPURCHASE RESTRICTED SHARES. Following termination of the
Stockholder's employment with the Company, the Company will have the right and
option (the "Repurchase Option"), but not the obligation, to repurchase all or
any portion of the Repurchasable Shares (as defined in Section 1(c) hereof), at
a purchase price per Share equal to $0.147. The Stockholder will not sell,
pledge, or otherwise transfer any Repurchasable Shares or any interest therein,
and all certificates representing Repurchasable Shares will bear appropriate
restrictive legends referring to the restrictions on transfer and repurchase
rights of the Company under this Agreement.
(C) NON-REPURCHASABLE SHARES. For purposes of this Agreement, and
subject to the following provisions, 2.0833% of the Restricted Shares will
become "Non-Repurchasable Shares" on the last day of each calendar month
beginning with April 1999, provided, in each case, that as of the relevant date
the Stockholder remains employed by the Company. All Restricted Shares that are
not Non-Repurchasable Shares as of any particular time of reference are referred
to in this Agreement as "Repurchasable Shares."
In addition to the foregoing: (1) in the event of a Business Combination, as
defined below, the greater of (a) 50% of the then remaining Repurchasable
Shares or (b) 25% of the Restricted Shares, will automatically and without
further action become Non-Repurchasable Shares; and (2) in addition to the
provision of the foregoing clause (1), in the event of an involuntary
termination of the Stockholder's employment with the Company for any reason or
no reason other than for Cause (as defined below), then 108,187 Shares of the
Restricted Shares will automatically and without further action become
Non-Repurchasable Shares.
For purposes of this Section 1, "Business Combination" shall mean (i)
the sale, lease or exchange (for cash, shares of stock, securities or other
consideration) of all or substantially all the property and assets of the
Company or (ii) the merger or consolidation of the Company into or with any
other corporation or entity or the merger or consolidation of any other
corporation into or with the Company (except for a merger or consolidation in
which the holders of the voting capital stock of
<PAGE> 3
the Company hold more than 50% of the voting rights of the surviving entity).
For purposes of this Section 1 and Section 2 below, an involuntary termination
of employment shall include a reduction in the authorities, duties or
responsibilities of the Stockholder to a level significantly below his then
existing authorities, duties or responsibilities. A termination shall be for
"Cause" if the Board of Directors of the Company shall determine in good faith
that any one or more of the following has occurred: (i) the Stockholder shall
have committed a material act of theft, dishonesty, gross dereliction of duty,
fraud, embezzlement, misappropriation, or material breach of fiduciary duty
against the Company, or has committed any other act of grave misconduct against
the Company, or (ii) the Stockholder shall have been convicted by a court of
competent jurisdiction of, or pleaded guilty or nolo contendere to, any felony
or any crime involving moral turpitude or dishonesty.
(D) EXERCISE OF REPURCHASE RIGHTS. The Company may exercise its
repurchase rights under this Section 1 by giving written notice (a "Repurchase
Notice") to the Stockholder and the Escrow Holder, specifying the number of
Repurchasable Shares that the Company desires to repurchase and setting a date
(not later than 30 days after the date of such Repurchase Notice) for the
closing of such repurchase. A Repurchase Notice may be given at any time within
90 days following the date of termination of the Stockholder's employment
hereunder, whereupon, if such time period for giving such Repurchase Notice
shall lapse without the Company having given such Repurchase Notice, the
Repurchase Option shall automatically expire.
Upon the giving of a Repurchase Notice, the Stockholder will be
obligated to sell to the Company, and the Company will be obligated to purchase,
the number of Repurchasable Shares specified in the Repurchase Notice, with the
closing of the purchase and sale to take place at the principal office of the
Company or its counsel on the date specified in the Repurchase Notice. At the
closing, the Escrow Holder will deliver to the Company the certificates
representing the Repurchasable Shares to be repurchased, together with duly
executed stock powers sufficient effectively to transfer ownership of such
Repurchasable Shares to the Company, free and clear of all liens, security
interests, and other encumbrances, and the Company will pay for such
Repurchasable Shares by check or wire transfer (and will issue to the
Stockholder a new stock certificate representing any Restricted Shares
represented by the certificate delivered to the Company that are not repurchased
by the Company). In the event that the Company fails to give a Repurchase Notice
or if the Repurchase Option expires unexercised, all of the then Repurchasable
Shares shall automatically and without further action become Non-Repurchasable
Shares.
2. SPECIAL PAYMENT/EFFECT OF TERMINATION. In the event that at any time
the Stockholder's employment with the Company is terminated for any reason or no
reason other than for Cause, the Company shall pay to the Stockholder (a) within
fourteen (14) days after the effective date of such termination, a cash payment
equal to six months' of such Stockholder's then base salary, plus (b) such
Stockholder's pro rata portion (based upon the number of days actually worked by
such Stockholder) of any bonus pursuant to any such then existing bonus plan or
arrangements.
<PAGE> 4
3. "LOCK-UP" AGREEMENT. The Stockholder agrees that if the Company at
any time or from time to time deems it necessary or desirable to make any
registered public offering(s) of shares of Common Stock, then upon the Company's
request, the Stockholder will not sell, make any short sale of, loan, grant any
option for the purchase of, pledge, or otherwise encumber or otherwise dispose
of any of the Restricted Shares during such period (not to exceed 180 days)
commencing on the effective date of the registration statement relating to any
such offering as the Company may request, except with the prior written consent
of the Company. The Stockholder agrees that he will enter into an agreement with
the Company's underwriters for a registered public offering if requested by such
underwriter, with respect to the foregoing agreements in this Section 3 and on
customary terms and conditions.
4. NO ASSIGNMENTS; BENEFITS OF AGREEMENT. Neither party will assign any
rights or delegate any obligations hereunder without the consent of the other
party (except that the Company may assign its rights and delegate its
obligations hereunder to any successor to its business, whether by merger or
consolidation, sale of stock or of all or substantially all of assets, or
otherwise), and any attempt to do so will be void. This Agreement will bind and
inure to the benefit of the parties hereto and their respective heirs,
successors, and permitted assigns.
5. NO THIRD-PARTY BENEFICIARIES. Nothing in this Agreement is intended
to or will confer any rights or remedies on any Person other than the parties
hereto, their respective heirs, successors, and permitted assigns.
6. NOTICES. All notices, requests, payments, instructions, or other
documents to be given hereunder will be in writing or by written
telecommunication, and will be deemed to have been duly given if (i) delivered
personally (effective upon delivery), (ii) mailed by registered or certified
mail, return receipt requested, postage prepaid (effective three business days
after dispatch), (iii) sent by a reputable, established courier service that
guarantees next business day delivery (effective the next business day), or (iv)
sent by telecopier followed within 24 hours by confirmation by one of the
foregoing methods (effective upon receipt of the telecopy in complete, readable
form), addressed to the recipient party at his or its address set forth in the
first paragraph hereof (or to such other address as the recipient party may have
furnished to the sending party for the purpose pursuant to this section).
7. COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered will be an
original, but all of which together will constitute one and the same agreement.
In pleading or proving this Agreement, it will not be necessary to produce or
account for more than one such counterpart.
8. CAPTIONS. The captions of sections or subsections of this Agreement
are for reference only and will not affect the interpretation or construction of
this Agreement.
<PAGE> 5
9. CONSTRUCTION. The language used in this Agreement is the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against either party.
10. WAIVERS; AMENDMENTS. No waiver of any breach or default hereunder
will be valid unless in a writing signed by the waiving party. No failure or
other delay by any party exercising any right, power, or privilege hereunder
will be or operate as a waiver thereof, nor will any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege. This Agreement may be amended only with the
prior written consent of the parties hereto.
11. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties, and supersedes any and all prior and/or
contemporaneous understandings or agreements between them, with respect to the
subject matter hereof.
12. EQUITABLE RELIEF. The Stockholder acknowledges that any breach by
him of his obligations under this Agreement would cause substantial and
irreparable damage to the Company, and that money damages would be an inadequate
remedy therefor. Accordingly, the Stockholder agrees that the Company will be
entitled to an injunction, specific performance, and/or other equitable relief
to prevent the breach of such obligations.
13. GOVERNING LAW. This Agreement will be governed by and interpreted
and construed in accordance with the internal laws of the State of Tennessee
(without reference to principles of conflicts or choice of law).
14. LEGENDS. The share certificate evidencing the Restricted Shares, if
any, shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN A STOCK
RESTRICTION AND SPECIAL PAYMENT AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, DATED AS OF MARCH 17, 1999, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY AND WILL BE PROVIDED UPON WRITTEN REQUEST.
15. ACKNOWLEDGEMENT REGARDING FEES. Stockholder hereby acknowledges
that he has received $65,000 on the date hereof, which represents in full the
amount owed him pursuant to Section 4 of the Personal Services Agreement, dated
September 22, 1998, between the Company and Stockholder and that no additional
amounts are owed Stockholder thereunder or otherwise in connection with the
Series A Purchase Agreement.
<PAGE> 6
IN WITNESS WHEREOF, each of the Company and the Stockholder has
executed and delivered this Stock Restriction and Special Payment Agreement as
of the date first above written.
COMPANY: BLUESTAR PROPERTIES, INC.
By: /s/ Fredjoseph Goldner
Name: Fredjoseph Goldner
Title: President/CEO
STOCKHOLDER: /s/ Richard L. Burtner
Name: Richard Burtner
<PAGE> 7
EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, ____________________, hereby sell, assign and
transfer unto ____________ (__________) shares of the Common Stock of BlueStar
Properties, Inc. (the "Company") standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint _________________ to transfer the said stock
on the books of the within named corporation with full power of substitution in
the premises.
This Stock Assignment may be used only in accordance with the Stock
Restriction and Special Payment Agreement (the "Agreement") between the Company
and the undersigned dated March _____, 1999.
Dated: _______________, 1999
Signature:_________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Stockholder.
<PAGE> 8
EXHIBIT A-2
JOINT ESCROW INSTRUCTIONS
March _____, 1999
Corporate Secretary
BlueStar Properties, Inc.
131 Second Avenue North
Nashville, TN 37201
Dear Sir/Madam:
As Escrow Agent for both BlueStar Properties, Inc., a Tennessee
corporation (the "Company"), and the undersigned stockholder of the Company (the
"Stockholder"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to Section 1(a) of that certain Stock Restriction and
Special Payment Agreement ("Agreement") between the Company and the undersigned,
dated as of March ____, 1999, in accordance with the following instructions:
1. In the event the Company exercises the Company's Repurchase Option
set forth in the Agreement, the Company and the Stockholder shall give to you a
written notice from both of them specifying the number of Repurchasable Shares
to be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company (the "Joint Written Instructions"). Stockholder
and the Company hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company, against the
simultaneous delivery to you of the purchase price (by cash, a check, or some
combination thereof) for the number of shares of stock being purchased, each of
the foregoing pursuant to the Joint Written Instructions.
3. Stockholder irrevocably authorizes the Company to deposit with you
any certificates evidencing Repurchasable Shares to be held by you hereunder
and any additions, substitutions and/or subtractions to said Repurchasable
Shares as defined in the Agreement. Stockholder does hereby irrevocably
constitute and appoint you as Stockholder's attorney-in-fact and agent for the
term of this escrow to execute with respect to such securities all documents
necessary or appropriate to make such securities negotiable and to complete any
transaction herein contemplated, including but
<PAGE> 9
not limited to the filing with any applicable state blue sky authority of any
required applications for consent to, or notice of transfer of, the securities.
Subject to the provisions of this paragraph 3, Stockholder shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
4. Upon written request of the Stockholder, but no more than twice per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Stockholder a certificate or certificates representing so many
of the Restricted Shares as are not then subject to the Company's Repurchase
Option. Simultaneously with the closing of a Business Combination, or within
ninety (90) days after Stockholder ceases to be an employee of the Company (and
consistent with the provisions pertaining to the termination of employment of
the Stockholder as more fully set forth in the Agreement), you shall deliver to
Stockholder a certificate or certificates representing the aggregate number of
Non-Repurchasable Shares held by you and all Repurchasable Shares not
purchased by the Company under its Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to
Stockholder, you shall deliver all of the same to Stockholder and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Stockholder while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
<PAGE> 10
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor to be reimbursed by the Company.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
<PAGE> 11
COMPANY: BlueStar Properties, Inc.
131 Second Avenue North
Nashville, TN 37201
Attention: Corporate Secretary
STOCKHOLDER:
ESCROW AGENT: BlueStar Properties, Inc.
131 Second Avenue North
Nashville, TN 37201
Attention: Corporate Secretary
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of Tennessee.
19. Capitalized terms used herein without definition shall have the
respective meanings for such terms set forth in the Agreement.
20. This letter agreement shall automatically terminate upon the
earlier to occur of: (a) the date on which the number of Repurchasable Shares,
pursuant to the Agreement, equals zero; and (b) ninety days after the date on
which the Stockholder ceases to be an employee of the Company or simultaneously
with the closing of a Business Combination, as the case may be (in which case
the securities held by you shall be delivered to the Stockholder as set forth in
Section 4).
<PAGE> 12
Very truly yours,
BLUESTAR PROPERTIES, INC.
------------------------------------
By
------------------------------------
Title
------------------------------------
STOCKHOLDER:
------------------------------------
----------------------------
Signature
------------------------------------
----------------------------
Print Name
ESCROW AGENT:
- --------------------------
Corporate Secretary
<PAGE> 13
EXHIBIT A-3
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Stock Restriction and Special Payment Agreement (the
"Agreement"). In consideration of the Company's grant to my spouse of the right
to purchase/receive shares of BlueStar Properties, Inc., I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19
--------------------------------
Signature of Spouse
<PAGE> 1
EXHIBIT 10.4
STOCK RESTRICTION
AND SPECIAL PAYMENT AGREEMENT
FREDJOSEPH GOLDNER
This Stock Restriction and Special Payment Agreement (this
"Agreement"), dated as of March 17, 1999, is by and between BlueStar Properties,
Inc., a Tennessee corporation (the "Company"), with its principal executive
offices at 131 Second Avenue North, Nashville, Tennessee 37201, and Fredjoseph
Goldner (the "Stockholder"), an individual residing at 912 Gale Lane, Nashville,
Tennessee 37204.
The Company proposes to enter into a Series A Preferred Stock Purchase
Agreement with certain investors, of even date herewith (the "Series A Purchase
Agreement"), pursuant to which such investors will purchase certain securities
from the Company. The execution and delivery of this Agreement by the Company
and the Stockholder is a condition precedent to the transactions contemplated by
the Series A Purchase Agreement, which the Company and the Stockholder believe
will benefit the Company and will also benefit the Stockholder, in his capacity
as a stockholder of the Company.
Accordingly, to induce the Company and the proposed investors to enter
into and consummate the transactions contemplated by the Series A Purchase
Agreement, the Company and the Stockholder agree as follows:
1. REPURCHASE RIGHTS OF THE COMPANY. The Stockholder currently holds an
aggregate of 1,642,500 shares (including any shares issued in respect thereof by
reason of any stock dividend, stock split, recapitalization, or other similar
event affecting such shares occurring after the date hereof) (the "Total
Shares") of the Company's Common Stock, $0.01 par value per share ("Common
Stock"). The Stockholder hereby grants to the Company certain repurchase rights
with respect to 65% of the Total Shares (i.e., 1,067,625 shares of Common Stock)
(the "Restricted Shares"), as set forth in this Section 1.
(A) ESCROW. To ensure the availability for delivery of the
Stockholder's Repurchasable Shares (as defined below in Section 1(c) hereof)
upon repurchase by the Company pursuant to the Repurchase Option (as defined
below in Section 1(b) hereof), the Stockholder shall, upon execution of this
Agreement, deliver and deposit with the corporate secretary of the Company as
escrow agent (the "Escrow Holder") the share certificate(s) representing the
Repurchasable Shares, together with a stock assignment duly endorsed in blank,
in the form attached hereto as Exhibit A-1. The Repurchasable Shares and stock
assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow
Instructions of the Company and Stockholder in the form attached hereto as
Exhibit A-2, until such time as the number of Repurchasable Shares is zero. [As
a further condition to the Company's obligations under this Agreement, the
Company may require the spouse of Stockholder, if any, to execute and deliver to
the Company a Consent of Spouse in the form attached hereto as Exhibit A-3.]
<PAGE> 2
Subject to the terms hereof, the Stockholder shall have all the
rights of a shareholder with respect to the Restricted Shares while they are
held in escrow, including without limitation, the right to vote the Restricted
Shares and to receive any cash dividends declared thereon. If, from time to time
during the period of time in which there are Repurchasable Shares, there is (i)
any stock dividend, stock split, combination of shares or other similar event
affecting the Restricted Shares, or (ii) any merger or sale of all or
substantially all of the assets or other acquisition of the Company, any and all
new, substituted or additional securities to which the Stockholder is entitled
by reason of the Stockholder's ownership of the Restricted Shares shall be
immediately subject to this escrow, deposited with the Escrow Holder and
included thereafter as "Restricted Shares," "Repurchasable Shares" and
"Non-Repurchasable Shares," as the case may be and as applicable, for purposes
of this Agreement and the Repurchase Option.
(B) RIGHT TO REPURCHASE RESTRICTED SHARES. Following termination of the
Stockholder's employment with the Company, the Company will have the right and
option (the "Repurchase Option"), but not the obligation, to repurchase all or
any portion of the Repurchasable Shares (as defined in Section 1(c) hereof), at
a purchase price per Share equal to $0.147. The Stockholder will not sell,
pledge, or otherwise transfer any Repurchasable Shares or any interest therein,
and all certificates representing Repurchasable Shares will bear appropriate
restrictive legends referring to the restrictions on transfer and repurchase
rights of the Company under this Agreement.
(C) NON-REPURCHASABLE SHARES. For purposes of this Agreement, and
subject to the following provisions, 2.0833% of the Restricted Shares will
become "Non-Repurchasable Shares" on the last day of each calendar month
beginning with April 1999, provided, in each case, that as of the relevant date
the Stockholder remains employed by the Company. All Restricted Shares that are
not Non-Repurchasable Shares as of any particular time of reference are referred
to in this Agreement as "Repurchasable Shares."
In addition to the foregoing: (1) in the event of a Business Combination, as
defined below, the greater of (a) 50% of the then remaining Repurchasable
Shares or (b) 25% of the Restricted Shares, will automatically and without
further action become Non-Repurchasable Shares; and (2) in addition to the
provision of the foregoing clause (1), in the event of an involuntary
termination of the Stockholder's employment with the Company for any reason or
no reason other than for Cause (as defined below), then 266,907 Shares of the
Restricted Shares will automatically and without further action become
Non-Repurchasable Shares.
For purposes of this Section 1, "Business Combination" shall mean (i)
the sale, lease or exchange (for cash, shares of stock, securities or other
consideration) of all or substantially all the property and assets of the
Company or (ii) the merger or consolidation of the Company into or with any
other corporation or entity or the merger or consolidation of any other
corporation into or with the Company (except for a merger or consolidation in
which the holders of the voting capital stock of
<PAGE> 3
the Company hold more than 50% of the voting rights of the surviving entity).
For purposes of this Section 1 and Section 2 below, an involuntary termination
of employment shall include a reduction in the authorities, duties or
responsibilities of the Stockholder to a level significantly below his then
existing authorities, duties or responsibilities. A termination shall be for
"Cause" if the Board of Directors of the Company shall determine in good faith
that any one or more of the following has occurred: (i) the Stockholder shall
have committed a material act of theft, dishonesty, gross dereliction of duty,
fraud, embezzlement, misappropriation, or material breach of fiduciary duty
against the Company, or has committed any other act of grave misconduct against
the Company, or (ii) the Stockholder shall have been convicted by a court of
competent jurisdiction of, or pleaded guilty or nolo contendere to, any felony
or any crime involving moral turpitude or dishonesty.
(D) EXERCISE OF REPURCHASE RIGHTS. The Company may exercise its
repurchase rights under this Section 1 by giving written notice (a "Repurchase
Notice") to the Stockholder and the Escrow Holder, specifying the number of
Repurchasable Shares that the Company desires to repurchase and setting a date
(not later than 30 days after the date of such Repurchase Notice) for the
closing of such repurchase. A Repurchase Notice may be given at any time within
90 days following the date of termination of the Stockholder's employment
hereunder, whereupon, if such time period for giving such Repurchase Notice
shall lapse without the Company having given such Repurchase Notice, the
Repurchase Option shall automatically expire.
Upon the giving of a Repurchase Notice, the Stockholder will be
obligated to sell to the Company, and the Company will be obligated to purchase,
the number of Repurchasable Shares specified in the Repurchase Notice, with the
closing of the purchase and sale to take place at the principal office of the
Company or its counsel on the date specified in the Repurchase Notice. At the
closing, the Escrow Holder will deliver to the Company the certificates
representing the Repurchasable Shares to be repurchased, together with duly
executed stock powers sufficient effectively to transfer ownership of such
Repurchasable Shares to the Company, free and clear of all liens, security
interests, and other encumbrances, and the Company will pay for such
Repurchasable Shares by check or wire transfer (and will issue to the
Stockholder a new stock certificate representing any Restricted Shares
represented by the certificate delivered to the Company that are not repurchased
by the Company). In the event that the Company fails to give a Repurchase Notice
or if the Repurchase Option expires unexercised, all of the then Repurchasable
Shares shall automatically and without further action become Non-Repurchasable
Shares.
2. SPECIAL PAYMENT/EFFECT OF TERMINATION. In the event that at any time
the Stockholder's employment with the Company is terminated for any reason or no
reason other than for Cause, the Company shall pay to the Stockholder (a) within
fourteen (14) days after the effective date of such termination, a cash payment
equal to six months' of such Stockholder's then base salary, plus (b) such
Stockholder's pro rata portion (based upon the number of days actually worked by
such Stockholder) of any bonus pursuant to any such then existing bonus plan or
arrangements.
<PAGE> 4
3. "LOCK-UP" AGREEMENT. The Stockholder agrees that if the Company at
any time or from time to time deems it necessary or desirable to make any
registered public offering(s) of shares of Common Stock, then upon the Company's
request, the Stockholder will not sell, make any short sale of, loan, grant any
option for the purchase of, pledge, or otherwise encumber or otherwise dispose
of any of the Restricted Shares during such period (not to exceed 180 days)
commencing on the effective date of the registration statement relating to any
such offering as the Company may request, except with the prior written consent
of the Company. The Stockholder agrees that he will enter into an agreement with
the Company's underwriters for a registered public offering if requested by such
underwriter, with respect to the foregoing agreements in this Section 3 and on
customary terms and conditions.
4. NO ASSIGNMENTS; BENEFITS OF AGREEMENT. Neither party will assign any
rights or delegate any obligations hereunder without the consent of the other
party (except that the Company may assign its rights and delegate its
obligations hereunder to any successor to its business, whether by merger or
consolidation, sale of stock or of all or substantially all of assets, or
otherwise), and any attempt to do so will be void. This Agreement will bind and
inure to the benefit of the parties hereto and their respective heirs,
successors, and permitted assigns.
5. NO THIRD-PARTY BENEFICIARIES. Nothing in this Agreement is intended
to or will confer any rights or remedies on any Person other than the parties
hereto, their respective heirs, successors, and permitted assigns.
6. NOTICES. All notices, requests, payments, instructions, or other
documents to be given hereunder will be in writing or by written
telecommunication, and will be deemed to have been duly given if (i) delivered
personally (effective upon delivery), (ii) mailed by registered or certified
mail, return receipt requested, postage prepaid (effective three business days
after dispatch), (iii) sent by a reputable, established courier service that
guarantees next business day delivery (effective the next business day), or (iv)
sent by telecopier followed within 24 hours by confirmation by one of the
foregoing methods (effective upon receipt of the telecopy in complete, readable
form), addressed to the recipient party at his or its address set forth in the
first paragraph hereof (or to such other address as the recipient party may have
furnished to the sending party for the purpose pursuant to this section).
7. COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered will be an
original, but all of which together will constitute one and the same agreement.
In pleading or proving this Agreement, it will not be necessary to produce or
account for more than one such counterpart.
8. CAPTIONS. The captions of sections or subsections of this Agreement
are for reference only and will not affect the interpretation or construction of
this Agreement.
<PAGE> 5
9. CONSTRUCTION. The language used in this Agreement is the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against either party.
10. WAIVERS; AMENDMENTS. No waiver of any breach or default hereunder
will be valid unless in a writing signed by the waiving party. No failure or
other delay by any party exercising any right, power, or privilege hereunder
will be or operate as a waiver thereof, nor will any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege. This Agreement may be amended only with the
prior written consent of the parties hereto.
11. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties, and supersedes any and all prior and/or
contemporaneous understandings or agreements between them, with respect to the
subject matter hereof.
12. EQUITABLE RELIEF. The Stockholder acknowledges that any breach by
him of his obligations under this Agreement would cause substantial and
irreparable damage to the Company, and that money damages would be an inadequate
remedy therefor. Accordingly, the Stockholder agrees that the Company will be
entitled to an injunction, specific performance, and/or other equitable relief
to prevent the breach of such obligations.
13. GOVERNING LAW. This Agreement will be governed by and interpreted
and construed in accordance with the internal laws of the State of Tennessee
(without reference to principles of conflicts or choice of law).
14. LEGENDS. The share certificate evidencing the Restricted Shares, if
any, shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN A STOCK
RESTRICTION AND SPECIAL PAYMENT AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, DATED AS OF MARCH 17, 1999, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY AND WILL BE PROVIDED UPON WRITTEN REQUEST.
[The rest of this page is intentionally left blank.]
<PAGE> 6
IN WITNESS WHEREOF, each of the Company and the Stockholder has
executed and delivered this Stock Restriction and Special Payment Agreement as
of the date first above written.
COMPANY: BLUESTAR PROPERTIES, INC.
By /s/ Fredjoseph Goldner
Name: Fredjoseph Goldner
Title: President/CEO
STOCKHOLDER: /s/ Fredjoseph Goldner
Name: Fredjoseph Goldner
<PAGE> 7
EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, _____________________, hereby sell, assign and
transfer unto __________ (__________) shares of the Common Stock of BlueStar
Properties, Inc. (the "Company") standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint _________________ to transfer the said stock
on the books of the within named corporation with full power of substitution in
the premises.
This Stock Assignment may be used only in accordance with the Stock
Restriction and Special Payment Agreement (the "Agreement") between the Company
and the undersigned dated March _____, 1999.
Dated: _______________, 1999
Signature:
----------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Stockholder.
<PAGE> 8
EXHIBIT A-2
JOINT ESCROW INSTRUCTIONS
March _____, 1999
Corporate Secretary
BlueStar Properties, Inc.
131 Second Avenue North
Nashville, TN 37201
Dear Sir/Madam:
As Escrow Agent for both BlueStar Properties, Inc., a Tennessee
corporation (the "Company"), and the undersigned stockholder of the Company (the
"Stockholder"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to Section 1(a) of that certain Stock Restriction and
Special Payment Agreement ("Agreement") between the Company and the undersigned,
dated as of March ____, 1999, in accordance with the following instructions:
1. In the event the Company exercises the Company's Repurchase Option
set forth in the Agreement, the Company and the Stockholder shall give to you a
written notice from both of them specifying the number of Repurchasable Shares
to be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company (the "Joint Written Instructions"). Stockholder
and the Company hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company, against the
simultaneous delivery to you of the purchase price (by cash, a check, or some
combination thereof) for the number of shares of stock being purchased, each of
the foregoing pursuant to the Joint Written Instructions.
3. Stockholder irrevocably authorizes the Company to deposit with you
any certificates evidencing Repurchasable Shares to be held by you hereunder
and any additions, substitutions and/or subtractions to said Repurchasable
Shares as defined in the Agreement. Stockholder does hereby irrevocably
constitute and appoint you as Stockholder's attorney-in-fact and agent for the
term of this escrow to execute with respect to such securities all documents
necessary or appropriate to make such securities negotiable and to complete any
transaction herein contemplated, including but
<PAGE> 9
not limited to the filing with any applicable state blue sky authority of any
required applications for consent to, or notice of transfer of, the securities.
Subject to the provisions of this paragraph 3, Stockholder shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
4. Upon written request of the Stockholder, but no more than twice per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Stockholder a certificate or certificates representing so many
of the Restricted Shares as are not then subject to the Company's Repurchase
Option. Simultaneously with the closing of a Business Combination, or within
ninety (90) days after Stockholder ceases to be an employee of the Company (and
consistent with the provisions pertaining to the termination of employment of
the Stockholder as more fully set forth in the Agreement), you shall deliver to
Stockholder a certificate or certificates representing the aggregate number of
Non-Repurchasable Shares held by you and all Repurchasable Shares not
purchased by the Company under its Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to
Stockholder, you shall deliver all of the same to Stockholder and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Stockholder while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
<PAGE> 10
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor to be reimbursed by the Company.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
<PAGE> 11
COMPANY: BlueStar Properties, Inc.
131 Second Avenue North
Nashville, TN 37201
Attention: Corporate Secretary
STOCKHOLDER:
ESCROW AGENT: BlueStar Properties, Inc.
131 Second Avenue North
Nashville, TN 37201
Attention: Corporate Secretary
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of Tennessee.
19. Capitalized terms used herein without definition shall have the
respective meanings for such terms set forth in the Agreement.
20. This letter agreement shall automatically terminate upon the
earlier to occur of: (a) the date on which the number of Repurchasable Shares,
pursuant to the Agreement, equals zero; and (b) ninety days after the date on
which the Stockholder ceases to be an employee of the Company or simultaneously
with the closing of a Business Combination, as the case may be (in which case
the securities held by you shall be delivered to the Stockholder as set forth in
Section 4).
<PAGE> 12
Very truly yours,
BLUESTAR PROPERTIES, INC.
---------------------------------------
By
---------------------------------------
Title
----------------------------------------------
STOCKHOLDER:
----------------------------------------------
---------------------------------------
Signature
----------------------------------------------
---------------------------------------
Print Name
ESCROW AGENT:
- --------------------------------
Corporate Secretary
<PAGE> 13
EXHIBIT A-3
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Stock Restriction and Special Payment Agreement (the
"Agreement"). In consideration of the Company's grant to my spouse of the right
to purchase/receive shares of BlueStar Properties, Inc., I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19
------------------------------------
Signature of Spouse
<PAGE> 1
EXHIBIT 10.5
MASTER LEASE AGREEMENT
NO. 2
----
This Master Lease Agreement (the "MLA") is entered into by and between
Ascend Credit Corporation ("Lessor"), having its principal place of business at
1701 Harbor Bay Parkway, Alameda, CA 94502 and BLUESTAR COMMUNICATIONS, INC.
("Lessee"), having its principal place of business at L & C Tower, 24th Floor,
401 Church Street, Nashville, TN 37219
1. LEASE AGREEMENT. Lessor agrees to lease to Lessee, and Lessee agrees to lease
from Lessor, the equipment (the "Equipment") referenced in each of the Schedules
(the "Schedule" or "Schedules") which incorporate this MLA therein (the
"Lease"). So long as no Event of Default has occurred or is continuing, Lessor
agrees to lease to Lessee the groups of Equipment described on each Schedule,
subject the following conditions, which Lessor in its sole discretion may elect
to waive with respect to a Schedule: (i) that in no event shall Lessor be
obligated to lease Equipment to Lessee hereunder where the aggregate purchase of
all Equipment leased to Lessee hereunder would exceed ONE HUNDRED ONE MILLION
DOLLARS ($101,000,000); (ii) the Equipment leased hereunder shall only be
Equipment manufactured by Lessor until such time as Lessor has merged with
Lucent Technologies ("Lucent"), after which equipment leased may be manufactured
by either Lessor or Lucent; (iii) that once aggregate Equipment leased under
this Master Lease reaches TWENTY TWO MILLION DOLLARS ($22,000,000), additional
Equipment leases shall be subject to Lessee meeting one of the following
covenants: (a) Lessee maintains, on a rolling 3 month basis, a 0.5 to 1 ratio of
new equity to total Equipment Leased under this Master Lease AND the Master
Lease dated July 29, 1998 (together the "Combined Leases") or (b) Lessee has a
cash flow (EBITDA) coverage of 1.25 times the total potential Rent payable under
the Combined Leases; (iv) that once aggregate Equipment leased the Combined
Leases reaches FIFTY MILLION DOLLARS ($50,000,000) additional Equipment leases
shall be subject to the Lessee maintaining at least Ten Million Dollars
($10,000,000) in unencumbered cash or cash equivalents on hand at all times: (v)
no change in control (defined as an event or series of events as a result of
which any person on group 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 Lessee's
directors); (vi) no new Equipment Leases shall be granted after November 30,
2000, and (vii) Advances under this Agreement may be made to subsidiaries of
affiliates under common control of Lessee, provided that Lessee has issued a
continuing guaranty in form and substance acceptable to Lessor, and as of the
date of such advances no Event of Default has occurred and is continuing
hereunder, and BlueStar Communications, Inc. remains in compliance with the
provisions of this paragraph.
2. TERM. Each Lease shall be effective upon the execution of the MLA and the
related Schedule by the Lessor and the Lessee. The lease term (the "Lease Term")
of the Equipment referenced in each of the Schedules shall commence on the rent
commencement date specified in each Schedule (the "Rent Commencement Date"). The
Rent Commencement Date shall be the date 30 days from the date that the
Equipment is shipped by the supplier (the "Ship Date") as evidenced by a
shipping document provided by the supplier related to the Equipment (the
"Shipping Document"). Lessor will provide Lessee with a copy of the Shipping
Document evidencing the Ship Date.
3. RENT. The rent (the "Rent") for the Equipment referenced in any Schedule
shall be as stated in such Schedule and shall be payable according to the
provisions of such Schedule. If any amount payable under a Schedule is not
received by Lessor within 10 days of the due date, Lessee agrees to pay an
Overdue Charge, as defined herein, with respect to such amount.
4. SELECTION AND ASSIGNMENT. Lessee will select the type, quantity and Supplier
(subject to restrictions noted above) of each item of Equipment designated in a
Schedule, and Lessee hereby assigns to Lessor all of its right, title and
interest in and to the related equipment purchase agreement, a copy of which has
been provided to Lessor by Lessee (the "Agreement"). The Agreement may be
amended with the consent of Lessor. Any such assignment with respect to
Equipment shall become binding upon Lessor when Lessor and Lessee have entered
into a Lease with respect to such Equipment and as of the Rent Commencement Date
referenced in such Lease. Upon such an assignment becoming effective, Lessor
shall be obligated to purchase the Equipment from the Supplier in accordance
with the provisions of the Agreement. It is expressly agreed that Lessee shall
at all times remain liable to Supplier under the Agreement to perform all duties
and obligations of Lessee thereunder, except for the obligation to purchase the
Equipment to the extent expressly assumed by the Lessor hereunder, and that the
Lessee shall be entitled to the same rights of the purchaser of the Equipment
under the Agreement, except such right, title and interest in the Equipment
retained exclusively by the Lessor as owner of the Equipment. Lessor shall have
no liability for a Supplier's failure to meet the terms and conditions of the
Agreement.
5. DELIVERY AND INSTALLATION. Lessee shall be responsible for payment of all
transportation, packing, installation, testing and other charges associated with
the delivery, installation or use of any Equipment which are not included in the
Agreement with respect to such Equipment.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS
OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS MERCHANTABILITY, OR ITS
FITNESS FOR A PARTICULAR PURPOSE. LESSOR SHALL NOT BE LIABLE TO LESSEE OR ANY
OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL INCIDENTAL OR CONSEQUENTIAL DAMAGES
ARISING FROM LESSEE'S USE OF THE EQUIPMENT, OR FOR DAMAGES BASED ON STRICT OR
ABSOLUTE TORT LIABILITY OR LESSOR'S PASSIVE NEGLIGENCE. LESSEE HEREBY
ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO
THE EQUIPMENT ARE FOR THE BENEFIT OF BOTH LESSOR AND LESSEE. NOTWITHSTANDING THE
FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH RENT PAYMENT DUE, OR OTHERWISE
PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL.
7. TITLE TO AND LOCATION OF EQUIPMENT. Lessor shall retain title to each item of
Equipment, Lessee, at its expense, shall protect Lessor's title and keep the
Equipment free from all claims, liens, encumbrances and legal processes. The
Equipment is personal property and is not to be regarded as part of the real
estate on which it may be situated. If requested by Lessor, Lessee will, at
Lessee's expense, furnish a landlord or mortgagee waiver with respect to the
Equipment. The Equipment shall not be removed from the location specified in the
Schedule without the written consent of Lessor. Lessee shall, upon Lessor's
request, affix and maintain plates, tags or other identifying labels, showing
Lessor's ownership of the Equipment in a prominent position on the Equipment.
8. USE OF EQUIPMENT, INSPECTION AND REPORTS. The use of the Equipment by Lessee
shall conform with all applicable laws, insurance policies, and warranties of
the manufacturer or Supplier of the Equipment. Lessor shall have the right to
inspect the Equipment at the premises where the Equipment is located. Lessee
shall notify Lessor promptly of any claim, liens, encumbrances or legal
processes with respect to the Equipment.
9. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor such
instruments as Lessor deems necessary for the confirmation of this Lease and
Lessor's rights hereunder. Lessor is authorized to file financing statements
signed only by the Lessor in accordance with the Uniform Commercial Code, or
financing statements signed by Lessor as Lessee's attorney-in-fact. Any such
filing with respect to the Equipment leased pursuant to a true lease shall not
be deemed evidence of any intent to create a security interest under The Uniform
Commercial Code.
10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense, maintain each item of
Equipment in good condition, normal wear and tear excepted. Lessee shall not
make any addition, alteration, or attachment to the Equipment without Lessor's
prior written consent. Lessee shall make no repair, addition, alteration or
attachment to the Equipment which interferes with the normal operation or
maintenance thereof, creates a safety hazard, or might result in the creation of
a mechanic's or materialman's lien.
11. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to perform any
of its obligations under a Lease, Lessor may perform any act or make any payment
which Lessor deems necessary for the maintenance and preservation of the
Equipment subject thereto and Lessor's title thereto. All sums so paid by Lessor
(together with all related Overdue Charges), and reasonable attorneys' fees
incurred by Lessor in connection therewith, shall be additional rent payable to
Lessor on demand. The performance of any such act or the making of any such
payment by Lessor shall not be deemed a waiver or release of any obligation or
default on the part of Lessee.
12. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to
indemnify, protect and hold harmless, Lessor, and its agents, employees,
officers, directors, partners and successors and assigns, from and against, all
liabilities, obligations, losses, damages, injuries, claims, demands, penalties,
actions, costs and expenses, including, without limitation, reasonable
attorney's fees, of whatever kind and nature, in contract or in tort, arising
out of the use, condition, operation, ownership, selection, delivery, leasing or
return of any item of Equipment, regardless of when, how and by whom operated,
or any failure on the part of Lessee to perform or comply with any of its
obligations under a Lease, excluding, however, any of the foregoing which result
from the gross negligence or willful misconduct of Lessor. Such indemnities and
assumptions of liabilities and obligations shall continue in full force and
effect, notwithstanding the expiration or other termination of such Lease.
Nothing contained in any Lease shall authorize Lessee to operate the Equipment
subject thereto so as to incur or impose any liability on, or obligation for or
on behalf of, Lessor.
13. NO OFF-SET. All Rents shall be paid by Lessee irrespective of any off-set,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, the manufacturer or Supplier of the Equipment or any other party.
14. ASSIGNMENT BY LESSEE. Lessee shall not, without Lessor's prior written
consent, (a) sell, assign, transfer, pledge, hypothecate, or otherwise dispose
of, encumber or suffer to exist a lien upon or against, any of the Equipment or
any lease, any interest therein, by operation of law or otherwise, or (b)
sublease or lend any of the Equipment or permit any of the Equipment to be used
by anyone other than Lessee.
15. ASSIGNMENT BY LESSOR. Lessor may assign, sell or encumber its interest in
any of the Equipment and any Lease. Upon Lessor's written consent, Lessee shall
pay directly to the assignee of any such interest all Rent and other sums due
under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO
ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM, RECOUPMENT, DEFENSE OR OTHER
RIGHT WHICH LESSEE MAY HAVE AGAINST LESSOR OR ANY OTHER PERSON OR ENTITY.
Notwithstanding the foregoing, any such assignment (a) shall be subject to
Lessee's right to possess and use the Equipment subject to a Lease so long as
Lessee is not in default thereunder, and (b) shall not release any of Lessor's
obligations hereunder.
16. RETURN OF EQUIPMENT. Unless Lessee has exercised its option, if any, to
renew a lease or purchase the Equipment subject thereto, upon expiration of the
then current Lease Term of such Lease, Lessee shall, at its expense, cause such
Equipment to be removed, disassembled, and placed in the same condition as when
delivered to Lessee (reasonable wear and tear expected) and properly crate such
Equipment for shipment and deliver it to a common carrier designated by Lessor.
Lessee will ship such Equipment, F.O.B. destination, to any address specified in
writing by Lessor within the continental United States. All additions,
attachments, alterations and repairs made or placed upon any of the Equipment
shall become part of such Equipment and shall be the property of Lessor.
17. EVENTS OF DEFAULT. The occurrence of any of the following shall be deemed to
constitute an Event of Default hereunder: (a) Lessee fails to pay Rent, any
other amount it is obligated to pay under a Lease or any other amount it is
obligated to pay to Lessor and does not cure such failure within 10 days of such
amount becoming due; (b) Lessee fails to perform or observe any obligation or
covenant to be performed or observed by Lessee hereunder or under any Schedule,
including, without limitation, supplying all requested documentation, and does
not cure such failure within 10 days of
<PAGE> 2
receiving written notice thereof from Lessor; (c) the occurrence and continuance
of any default under any lease or agreement for borrowed money made between
Ascend Communications, Inc. or its affiliates or successors, and the Lessee; (d)
any warranty, representation or statement made or furnished to Lessor by or on
behalf of Lessee is proven to have been false in any material respect when made
or furnished; (e) the attempted sale or encumbrance by Lessee of the Equipment,
or the making of any levy, seizure or attachment thereof or thereon; or (f) the
dissolution, termination of existence, discontinuance of business, insolvency,
or appointment of a receiver of any part of the property of Lessee, assignment
by Lessee for the benefit of creditors, the commencement of proceedings under
any bankruptcy, reorganization or arrangement laws by or against Lessee, or any
other act of bankruptcy on the part of Lessee.
18. REMEDIES OF LESSOR. Any time after the occurrence of any Event of Default,
Lessor may exercise one or more of the following remedies: (a) Lessor may
terminate any or all of the Leases with respect to any or all items of Equipment
subject thereto; (b) Lessor may recover from Lessee all Rent and other amounts
then due and to become due under any or all of the Leases; (c) Lessor may take
possession of any or all items of Equipment, wherever the same may be located,
without demand or notice, without any court order or other process of law and
without liability to Lessee for any damages occasioned by such taking of
possession, and any such taking of possession shall not constitute a termination
of any Lease; (d) Lessor may demand that Lessee return any or all items of
Equipment to Lessor in accordance with Paragraph 16; and (e) Lessor may pursue
any other remedy available at law or in equity, including, without limitation,
seeking damages, specific performance or an injunction.
Upon repossession or return of any item of the Equipment, Lessor shall
sell, lease or otherwise dispose of such item in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the net
proceeds thereof (after deducting the estimated fair market value of such item
at the expiration of the term of the applicable Lease, in the case of a sale, or
the rents due for any period beyond the scheduled expiration of such Lease, in
the case of any subsequent lease of such item, and all expenses, including,
without limitation, reasonable attorney's fees, incurred in connection
therewith) towards the Rent and other amounts due under such Lease, with any
excess net proceeds to be retained by the Lessor.
Each of the remedies under this Lease shall be cumulative, and not
exclusive, and in addition to any other remedy referred to herein or otherwise
available to Lessor in law or in equity. Any repossession or subsequent sale or
lease by Lessor of any item of Equipment shall not bar an action for a
deficiency as herein provided, and the bringing of an action or the entry of
judgment against Lessee shall not bar Lessor's right to repossess any or all
items of Equipment.
19. CREDIT AND FINANCIAL INFORMATION. Within 90 days of the close of Lessee's
fiscal years, Lessee shall deliver to Lessor a copy of Lessee's annual report,
if any, and an audited balance sheet and profit and loss statement with respect
to such year. Within 30 days of the close of Lessee's fiscal quarters, Lessee
shall deliver to Lessor a balance sheet and profit and loss statement certified
by an officer of Lessee. Lessee shall deliver any other additional information
regarding historic or projected operating performance that is reasonably
requested by Lessor.
20. INSURANCE. As of the date that risk of loss for the Equipment passes from
the Supplier to the Lessee under the terms of the Agreement, Lessee shall obtain
and maintain through the end of the Lease Term of each Lease (and any renewal or
extension thereof), at its own expense, property damage and personal liability
insurance and insurance against loss or damage to the Equipment, including,
without limitation, loss by fire (with extended coverage), theft and such other
risks of loss as are customarily insured against with respect to the types of
Equipment leased hereunder and by the types of businesses in which such
Equipment will be used by Lessee. Such insurance shall be in such amounts, with
such deductibles, in such form and with such insurers as shall be satisfactory
to Lessor; provided, however, that the amount of the insurance against loss or
damage to the Equipment shall not be less than the greater of the replacement
value of the Equipment, from time to time, or the original purchase price of the
Equipment. Each insurance policy shall name Lessee as an insured and Lessor as
an additional insured or loss payee, and shall contain a clause requiring the
insurer to give Lessor at least 30 days prior written notice of any alteration
in the terms of such policy or of the cancellation thereof. Lessee shall furnish
to Lessor a certificate of insurance or other evidence satisfactory to Lessor
that such insurance coverage is in effect; provided, however, that Lessor shall
be under no duty either to ascertain the existence of or to examine such
insurance policy or to advise Lessee in the event such insurance coverage shall
not comply with the requirements hereof. Lessee shall give Lessor prompt notice
of any damage to, or loss of, any of the Equipment, or any part thereof, or any
personal injury or property damage occasioned by the use of any of the
Equipment.
21. TAXES. Lessee hereby assumes liability for, and shall pay when due, and, on
a net after-tax-basis, shall indemnify, protect and hold harmless Lessor against
all fees, taxes and governmental charges (including, without limitation,
interest and penalties) of any nature imposed on or in any way relating to
Lessor, Lessee, any item of Equipment or any Lease, except state and local taxes
on or measured by Lessor's net income (other than any such tax which is in
substitution for or relieves Lessee from the payment of taxes it would otherwise
be obligated to pay or reimburse to Lessor as herein provided) and federal taxes
on Lessor's net income. Lessee shall, at its expense, file when due with the
appropriate authorities any and all tax and similar returns, and reports
required to be filed with respect thereto, for which it has indemnified Lessor
hereunder or, if requested by Lessor, notify Lessor of all such requirements and
furnish Lessor with all information required for Lessor to effect such filings.
Any fees, taxes or other charges paid by Lessor upon failure of Lessee to make
such payments shall, at Lessor's option, become immediately due from Lessee to
Lessor and shall be subject to the Overdue Charge from the date paid by Lessor
until the date reimbursed by Lessee.
22. SEVERABILITY. If any provision of any Lease is held to be invalid by a court
of a competent jurisdiction, such invalidity shall not affect the other
provisions of such Lease or any provision of any other Lease.
23. NOTICES. All notices hereunder shall be in writing and shall be deemed given
when sent by certified mail, postage prepaid, return receipt requested,
addressed to the party to which it is being sent at its address set forth herein
or to such other address as such party may designate in writing to the other
party.
24. AMENDMENTS, WAIVERS AND EXTENSIONS. This MLA and each Schedule constitute
the entire agreement between Lessor and Lessee with respect to the lease of the
Equipment subject to such Schedule, and supersede all previous communications,
understandings, and agreements, whether oral or written, between the parties
with respect to such subject matter. No provision of any Lease may be changed,
waived, amended or terminated except by a written agreement, specifying such
change, waiver, amendment or termination, signed by both Lessee and Lessor,
except that Lessor may insert, on the appropriate schedule, the serial number of
Equipment, after delivery of such Equipment, and the Rent Commencement Date for
the Equipment. No waiver by Lessor of any Event of Default shall be construed as
a waiver of any future Event of Default or any other Event of Default. At the
expiration of the Lease Term with respect to a Lease, upon notice given by
Lessee at least ninety (90) days prior thereto, (a) such lease shall be renewed
based upon the fair market value of the equipment as of the date of renewal or
the Equipment subject thereto shall be purchased under the terms and conditions
set forth herein for a term and rent amount or purchase price, as the case may
be, to be agreed upon, or (b) if no such agreement is reached prior to the
expiration of such Lease Term or such notice specifies that Lessee intends to
return the Equipment, then Lessee shall return the Equipment to Lessor in the
manner prescribed in Paragraph 16 of this MLA. In the absence of Lessor's timely
receipt of the notice contemplated by the preceding sentence, the Lease shall be
automatically extended, on a month-to-month basis, until terminated (upon notice
by either party given at least ninety (90) days prior to the end of the month on
which the termination is to be effective) or until renewed or the Equipment
subject thereto is purchased by agreement of the parties. Unless otherwise
agreed, Lessee shall continue to pay Rent for each month following such Lease
Term until the Equipment subject to such Lease is returned pursuant to Paragraph
16 of this MLA.
25. CONSTRUCTION. This MLA shall be governed by and construed in accordance with
the internal laws, but not the choice of laws provisions, of the State of
California. The titles of the sections of this MLA are for convenience only and
shall not define or limit any of the terms or provisions hereof. Time is of the
essence in each of the provisions hereof.
26. PARTIES. This MLA shall be binding upon, and inure to the benefit of, the
permitted assigns, representatives and successors of the Lessor and Lessee. If
there is more than one Lessee named in this MLA, the liability of each shall be
joint and several.
27. COUNTERPARTS. Each Lease may be executed in two or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
but one and the same instrument.
28. OVERDUE CHARGE. Overdue Charge shall mean an amount equal to 2% per month of
any payment under a Lease which is past due, including, without limitation, any
amounts not included in any payment of Rent hereunder, or the highest charge
permitted by law, whichever is lower.
The person executing this MLA on behalf of Lessee hereby certifies that he or
she has read, and is duly authorized to execute, this MLA.
Accepted by:
ASCEND CREDIT CORPORATION LESSEE: BLUESTAR COMMUNICATIONS, INC.
BY: /S/ Mark E. Alman BY: /S/ Richard L. Burtner
----------------------------- -----------------------------
NAME: Mark E. Alman NAME: Richard L. Burtner
----------------------------- -----------------------------
Print
TITLE: Director of Corporate Finance TITLE: CFO
----------------------------- -----------------------------
DATE: 7/5/99 DATE: 5/28/99
----------------------------- -----------------------------
<PAGE> 1
EXHIBIT 10.6
MASTER LEASE AGREEMENT
NO. 1
This Master Lease Agreement (the "MLA") is entered into by and between
Ascend Credit Corporation ("Lessor"), having its principal place of business at
1701 Harbor Bay Parkway, Alameda, CA 94502 and BLUESTAR COMMUNICATIONS, INC.
("Lessee"), having its principal place of business at L & C Tower,
24th Floor, 401 Church Street, Nashville, TN 37219
1. LEASE AGREEMENT. Lessor agrees to lease to Lessee, and Lessee agrees to lease
from Lessor, the equipment (the "Equipment") referenced in each of the Schedules
(the "Schedule" or "Schedules") which incorporate this MLA therein (the
"Lease"). So long as no Event of Default has occurred or is continuing, Lessor
agrees to lease to Lessee the groups of Equipment described on each Schedule,
subject the following conditions, which Lessor in its sole discretion may elect
to waive with respect to a Schedule: (i) that in no event shall Lessor be
obligated to lease Equipment to Lessee hereunder where the aggregate purchase of
all Equipment leased to Lessee hereunder would exceed ONE HUNDRED ONE MILLION
DOLLARS ($101,000,000); (ii) the Equipment leased hereunder shall only be
Equipment manufactured by Lessor until such time as Lessor has merged with
Lucent Technologies ("Lucent"), after which equipment leased may be manufactured
by either Lessor or Lucent; (iii) that once aggregate Equipment leased under
this Master Lease reaches TWENTY TWO MILLION DOLLARS ($22,000,000), additional
Equipment leases shall be subject to Lessee meeting one of the following
covenants: (a) Lessee maintains, on a rolling 3 month basis, a 0.5 to 1 ratio of
new equity to total Equipment Leased under this Master Lease AND the Master
Lease dated July 29, 1998 (together the "Combined Leases") or (b) Lessee has a
cash flow (EBITDA) coverage of 1.25 times the total potential Rent payable under
the Combined Leases; (iv) that once aggregate Equipment leased the Combined
Leases reaches FIFTY MILLION DOLLARS ($50,000,000) additional Equipment leases
shall be subject to the Lessee maintaining at least Ten Million Dollars
($10,000,000) in unencumbered cash or cash equivalents on hand at all times: (v)
no change in control (defined as an event or series of events as a result of
which any person on group 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 Lessee's
directors); (vi) no new Equipment Leases shall be granted after November 30,
2000, and (vii) Advances under this Agreement may be made to subsidiaries of
affiliates under common control of Lessee, provided that Lessee has issued a
continuing guaranty in form and substance acceptable to Lessor, and as of the
date of such advances no Event of Default has occurred and is continuing
hereunder, and BlueStar Communications, Inc. remains in compliance with the
provisions of this paragraph.
2. TERM. Each Lease shall be effective upon the execution of the MLA and the
related Schedule by the Lessor and the Lessee. The lease term (the "Lease Term")
of the Equipment referenced in each of the Schedules shall commence on the rent
commencement date specified in each Schedule (the "Rent Commencement Date"). The
Rent Commencement Date shall be the date 30 days from the date that the
Equipment is shipped by the supplier (the "Ship Date") as evidenced by a
shipping document provided by the supplier related to the Equipment (the
"Shipping Document"). Lessor will provide Lessee with a copy of the Shipping
Document evidencing the Ship Date.
3. RENT. The rent (the "Rent") for the Equipment referenced in any Schedule
shall be as stated in such Schedule and shall be payable according to the
provisions of such Schedule. If any amount payable under a Schedule is not
received by Lessor within 10 days of the due date, Lessee agrees to pay an
Overdue Charge, as defined herein, with respect to such amount.
4. SELECTION AND ASSIGNMENT. Lessee will select the type, quantity and Supplier
(subject to restrictions noted above) of each item of Equipment designated in a
Schedule, and Lessee hereby assigns to Lessor all of its right, title and
interest in and to the related equipment purchase agreement, a copy of which has
been provided to Lessor by Lessee (the "Agreement"). The Agreement may be
amended with the consent of Lessor. Any such assignment with respect to
Equipment shall become binding upon Lessor when Lessor and Lessee have entered
into a Lease with respect to such Equipment and as of the Rent Commencement Date
referenced in such Lease. Upon such an assignment becoming effective, Lessor
shall be obligated to purchase the Equipment from the Supplier in accordance
with the provisions of the Agreement. It is expressly agreed that Lessee shall
at all times remain liable to Supplier under the Agreement to perform all duties
and obligations of Lessee thereunder, except for the obligation to purchase the
Equipment to the extent expressly assumed by the Lessor hereunder, and that the
Lessee shall be entitled to the same rights of the purchaser of the Equipment
under the Agreement, except such right, title and interest in the Equipment
retained exclusively by the Lessor as owner of the Equipment. Lessor shall have
no liability for a Supplier's failure to meet the terms and conditions of the
Agreement.
5. DELIVERY AND INSTALLATION. Lessee shall be responsible for payment of all
transportation, packing, installation, testing and other charges associated with
the delivery, installation or use of any Equipment which are not included in the
Agreement with respect to such Equipment.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS
OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS MERCHANTABILITY, OR ITS
FITNESS FOR A PARTICULAR PURPOSE. LESSOR SHALL NOT BE LIABLE TO LESSEE OR ANY
OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL INCIDENTAL OR CONSEQUENTIAL DAMAGES
ARISING FROM LESSEE'S USE OF THE EQUIPMENT, OR FOR DAMAGES BASED ON STRICT OR
ABSOLUTE TORT LIABILITY OR LESSOR'S PASSIVE NEGLIGENCE. LESSEE HEREBY
ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO
THE EQUIPMENT ARE FOR THE BENEFIT OF BOTH LESSOR AND LESSEE. NOTWITHSTANDING THE
FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH RENT PAYMENT DUE, OR OTHERWISE
PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL.
7. TITLE TO AND LOCATION OF EQUIPMENT. Lessor shall retain title to each item of
Equipment, Lessee, at its expense, shall protect Lessor's title and keep the
Equipment free from all claims, liens, encumbrances and legal processes. The
Equipment is personal property and is not to be regarded as part of the real
estate on which it may be situated. If requested by Lessor, Lessee will, at
Lessee's expense, furnish a landlord or mortgagee waiver with respect to the
Equipment. The Equipment shall not be removed from the location specified in the
Schedule without the written consent of Lessor. Lessee shall, upon Lessor's
request, affix and maintain plates, tags or other identifying labels, showing
Lessor's ownership of the Equipment in a prominent position on the Equipment.
8. USE OF EQUIPMENT, INSPECTION AND REPORTS. The use of the Equipment by Lessee
shall conform with all applicable laws, insurance policies, and warranties of
the manufacturer or Supplier of the Equipment. Lessor shall have the right to
inspect the Equipment at the premises where the Equipment is located. Lessee
shall notify Lessor promptly of any claim, liens, encumbrances or legal
processes with respect to the Equipment.
9. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor such
instruments as Lessor deems necessary for the confirmation of this Lease and
Lessor's rights hereunder. Lessor is authorized to file financing statements
signed only by the Lessor in accordance with the Uniform Commercial Code, or
financing statements signed by Lessor as Lessee's attorney-in-fact. Any such
filing with respect to the Equipment leased pursuant to a true lease shall not
be deemed evidence of any intent to create a security interest under The Uniform
Commercial Code.
10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense, maintain each item of
Equipment in good condition, normal wear and tear excepted. Lessee shall not
make any addition, alteration, or attachment to the Equipment without Lessor's
prior written consent. Lessee shall make no repair, addition, alteration or
attachment to the Equipment which interferes with the normal operation or
maintenance thereof, creates a safety hazard, or might result in the creation of
a mechanic's or materialman's lien.
11. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to perform any
of its obligations under a Lease, Lessor may perform any act or make any payment
which Lessor deems necessary for the maintenance and preservation of the
Equipment subject thereto and Lessor's title thereto. All sums so paid by Lessor
(together with all related Overdue Charges), and reasonable attorneys' fees
incurred by Lessor in connection therewith, shall be additional rent payable to
Lessor on demand. The performance of any such act or the making of any such
payment by Lessor shall not be deemed a waiver or release of any obligation or
default on the part of Lessee.
12. INDEMNIFACTION. Lessee assumes liability for, and hereby agrees to
indemnify, protect and hold harmless, Lessor, and its agents, employees,
officers, directors, partners and successors and assigns, from and against, all
liabilities, obligations, losses, damages, injuries, claims, demands, penalties,
actions, costs and expenses, including, without limitation, reasonable
attorney's fees, of whatever kind and nature, in contract or in tort, arising
out of the use, condition, operation, ownership, selection, delivery, leasing or
return of any item of Equipment, regardless of when, how and by whom operated,
or any failure on the part of Lessee to perform or comply with any of its
obligations under a Lease, excluding, however, any of the foregoing which result
from the gross negligence or willful misconduct of Lessor. Such indemnities and
assumptions of liabilities and obligations shall continue in full force and
effect, notwithstanding the expiration or other termination of such Lease.
Nothing contained in any Lease shall authorize Lessee to operate the Equipment
subject thereto so as to incur or impose any liability on, or obligation for or
on behalf of, Lessor.
13. NO OFF-SET. All Rents shall be paid by Lessee irrespective of any off-set,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, the manufacturer or Supplier of the Equipment or any other party.
14. ASSIGNMENT BY LESSEE. Lessee shall not, without Lessor's prior written
consent, (a) sell, assign, transfer, pledge, hypothecate, or otherwise dispose
of, encumber or suffer to exist a lien upon or against, any of the Equipment or
any lease, any interest therein, by operation of law or otherwise, or (b)
sublease or lend any of the Equipment or permit any of the Equipment to be used
by anyone other than Lessee.
15. ASSIGNMENT BY LESSOR. Lessor may assign, sell or encumber its interest in
any of the Equipment and any Lease. Upon Lessor's written consent, Lessee shall
pay directly to the assignee of any such interest all Rent and other sums due
under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO
ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM, RECOUPMENT, DEFENSE OR OTHER
RIGHT WHICH LESSEE MAY HAVE AGAINST LESSOR OR ANY OTHER PERSON OR ENTITY.
Notwithstanding the foregoing, any such assignment (a) shall be subject to
Lessee's right to possess and use the Equipment subject to a Lease so long as
Lessee is not in default thereunder, and (b) shall not release any of Lessor's
obligations hereunder.
16. RETURN OF EQUIPMENT. Unless Lessee has exercised its option, if any, to
renew a lease or purchase the Equipment subject thereto, upon expiration of the
then current Lease Term of such Lease, Lessee shall, at its expense, cause such
Equipment to be removed, disassembled, and placed in the same condition as when
delivered to Lessee (reasonable wear and tear expected) and properly crate such
Equipment for shipment and deliver it to a common carrier designated by Lessor.
Lessee will ship such Equipment, F.O.B. destination, to any address specified in
writing by Lessor within the continental United States. All additions,
attachments, alterations and repairs made or placed upon any of the Equipment
shall become part of such Equipment and shall be the property of Lessor.
17. EVENTS OF DEFAULT. The occurrence of any of the following shall be deemed to
constitute an Event of Default hereunder: (a) Lessee fails to pay Rent, any
other amount it is obligated to pay under a Lease or any other amount it is
obligated to pay to Lessor and does not cure such failure within 10 days of such
amount becoming due; (b) Lessee fails to perform or observe any obligation or
covenant to be performed or observed by Lessee hereunder or under any Schedule,
including, without limitation, supplying all requested documentation, and does
not cure such failure within 10 days of
<PAGE> 2
receiving written notice thereof from Lessor; (c) the occurrence and continuance
of any default under any lease or agreement for borrowed money made between
Ascend Communications, Inc. or its affiliates or successors, and the Lessee; (d)
any warranty, representation or statement made or furnished to Lessor by or on
behalf of Lessee is proven to have been false in any material respect when made
or furnished; (e) the attempted sale or encumbrance by Lessee of the Equipment,
or the making of any levy, seizure or attachment thereof or thereon; or (f) the
dissolution, termination of existence, discontinuance of business, insolvency,
or appointment of a receiver of any part of the property of Lessee, assignment
by Lessee for the benefit of creditors, the commencement of proceedings under
any bankruptcy, reorganization or arrangement laws by or against Lessee, or any
other act of bankruptcy on the part of Lessee.
18. REMEDIES OF LESSOR. Any time after the occurrence of any Event of Default,
Lessor may exercise one or more of the following remedies: (a) Lessor may
terminate any or all of the Leases with respect to any or all items of Equipment
subject thereto; (b) Lessor may recover from Lessee all Rent and other amounts
then due and to become due under any or all of the Leases; (c) Lessor may take
possession of any or all items of Equipment, wherever the same may be located,
without demand or notice, without any court order or other process of law and
without liability to Lessee for any damages occasioned by such taking of
possession, and any such taking of possession shall not constitute a termination
of any Lease; (d) Lessor may demand that Lessee return any or all items of
Equipment to Lessor in accordance with Paragraph 16; and (e) Lessor may pursue
any other remedy available at law or in equity, including, without limitation,
seeking damages, specific performance or an injunction.
Upon repossession or return of any item of the Equipment, Lessor shall
sell, lease or otherwise dispose of such item in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the net
proceeds thereof (after deducting the estimated fair market value of such item
at the expiration of the term of the applicable Lease, in the case of a sale, or
the rents due for any period beyond the scheduled expiration of such Lease, in
the case of any subsequent lease of such item, and all expenses, including,
without limitation, reasonable attorney's fees, incurred in connection
therewith) towards the Rent and other amounts due under such Lease, with any
excess net proceeds to be retained by the Lessor.
Each of the remedies under this Lease shall be cumulative, and not
exclusive, and in addition to any other remedy referred to herein or otherwise
available to Lessor in law or in equity. Any repossession or subsequent sale or
lease by Lessor of any item of Equipment shall not bar an action for a
deficiency as herein provided, and the bringing of an action or the entry of
judgment against Lessee shall not bar Lessor's right to repossess any or all
items of Equipment.
19. CREDIT AND FINANCIAL INFORMATION. Within 90 days of the close of Lessee's
fiscal years, Lessee shall deliver to Lessor a copy of Lessee's annual report,
if any, and an audited balance sheet and profit and loss statement with respect
to such year. Within 30 days of the close of Lessee's fiscal quarters, Lessee
shall deliver to Lessor a balance sheet and profit and loss statement certified
by an officer of Lessee. Lessee shall deliver any other additional information
regarding historic or projected operating performance that is reasonably
requested by Lessor.
20. INSURANCE. As of the date that risk of loss for the Equipment passes from
the Supplier to the Lessee under the terms of the Agreement, Lessee shall obtain
and maintain through the end of the Lease Term of each Lease (and any renewal or
extension thereof), at its own expense, property damage and personal liability
insurance and insurance against loss or damage to the Equipment, including,
without limitation, loss by fire (with extended coverage), theft and such other
risks of loss as are customarily insured against with respect to the types of
Equipment leased hereunder and by the types of businesses in which such
Equipment will be used by Lessee. Such insurance shall be in such amounts, with
such deductibles, in such form and with such insurers as shall be satisfactory
to Lessor; provided, however, that the amount of the insurance against loss or
damage to the Equipment shall not be less than the greater of the replacement
value of the Equipment, from time to time, or the original purchase price of the
Equipment. Each insurance policy shall name Lessee as an insured and Lessor as
an additional insured or loss payee, and shall contain a clause requiring the
insurer to give Lessor at least 30 days prior written notice of any alteration
in the terms of such policy or of the cancellation thereof. Lessee shall furnish
to Lessor a certificate of insurance or other evidence satisfactory to Lessor
that such insurance coverage is in effect; provided, however, that Lessor shall
be under no duty either to ascertain the existence of or to examine such
insurance policy or to advise Lessee in the event such insurance coverage shall
not comply with the requirements hereof. Lessee shall give Lessor prompt notice
of any damage to, or loss of, any of the Equipment, or any part thereof, or any
personal injury or property damage occasioned by the use of any of the
Equipment.
21. TAXES. Lessee hereby assumes liability for, and shall pay when due, and, on
a net after-tax-basis, shall indemnify, protect and hold harmless Lessor against
all fees, taxes and governmental charges (including, without limitation,
interest and penalties) of any nature imposed on or in any way relating to
Lessor, Lessee, any item of Equipment or any Lease, except state and local taxes
on or measured by Lessor's net income (other than any such tax which is in
substitution for or relieves Lessee from the payment of taxes it would otherwise
be obligated to pay or reimburse to Lessor as herein provided) and federal taxes
on Lessor's net income. Lessee shall, at its expense, file when due with the
appropriate authorities any and all tax and similar returns, and reports
required to be filed with respect thereto, for which it has indemnified Lessor
hereunder or, if requested by Lessor, notify Lessor of all such requirements and
furnish Lessor with all information required for Lessor to effect such filings.
Any fees, taxes or other charges paid by Lessor upon failure of Lessee to make
such payments shall, at Lessor's option, become immediately due from Lessee to
Lessor and shall be subject to the Overdue Charge from the date paid by Lessor
until the date reimbursed by Lessee.
22. SEVERABILITY. If any provision of any Lease is held to be invalid by a court
of a competent jurisdiction, such invalidity shall not affect the other
provisions of such Lease or any provision of any other Lease.
23. NOTICES. All notices hereunder shall be in writing and shall be deemed given
when sent by certified mail, postage prepaid, return receipt requested,
addressed to the party to which it is being sent at its address set forth herein
or to such other address as such party may designate in writing to the other
party.
24. AMENDMENTS, WAIVERS AND EXTENSIONS. This MLA and each Schedule constitute
the entire agreement between Lessor and Lessee with respect to the lease of the
Equipment subject to such Schedule, and supersede all previous communications,
understandings, and agreements, whether oral or written, between the parties
with respect to such subject matter. No provision of any Lease may be changed,
waived, amended or terminated except by a written agreement, specifying such
change, waiver, amendment or termination, signed by both Lessee and Lessor,
except that Lessor may insert, on the appropriate schedule, the serial number of
Equipment, after delivery of such Equipment, and the Rent Commencement Date for
the Equipment. No waiver by Lessor of any Event of Default shall be construed as
a waiver of any future Event of Default or any other Event of Default. At the
expiration of the Lease Term with respect to a Lease, upon notice given by
Lessee at least ninety (90) days prior thereto, (a) such lease shall be renewed
based upon the fair market value of the equipment as of the date of renewal or
the Equipment subject thereto shall be purchased under the terms and conditions
set forth herein for a term and rent amount or purchase price, as the case may
be, to be agreed upon, or (b) if no such agreement is reached prior to the
expiration of such Lease Term or such notice specifies that Lessee intends to
return the Equipment, then Lessee shall return the Equipment to Lessor in the
manner prescribed in Paragraph 16 of this MLA. In the absence of Lessor's timely
receipt of the notice contemplated by the preceding sentence, the Lease shall be
automatically extended, on a month-to-month basis, until terminated (upon notice
by either party given at least ninety (90) days prior to the end of the month on
which the termination is to be effective) or until renewed or the Equipment
subject thereto is purchased by agreement of the parties. Unless otherwise
agreed, Lessee shall continue to pay Rent for each month following such Lease
Term until the Equipment subject to such Lease is returned pursuant to Paragraph
16 of this MLA.
25. CONSTRUCTION. This MLA shall be governed by and construed in accordance with
the internal laws, but not the choice of laws provisions, of the State of
California. The titles of the sections of this MLA are for convenience only and
shall not define or limit any of the terms or provisions hereof. Time is of the
essence in each of the provisions hereof.
26. PARTIES. This MLA shall be binding upon, and inure to the benefit of, the
permitted assigns, representatives and successors of the Lessor and Lessee. If
there is more than one Lessee named in this MLA, the liability of each shall be
joint and several.
27. COUNTERPARTS. Each Lease may be executed in two or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
but one and the same instrument.
28. OVERDUE CHARGE. Overdue Charge shall mean an amount equal to 2% per month of
any payment under a Lease which is past due, including, without limitation, any
amounts not included in any payment of Rent hereunder, or the highest charge
permitted by law, whichever is lower.
The person executing this MLA on behalf of Lessee hereby certifies that he or
she has read, and is duly authorized to execute, this MLA.
Accepted by:
ASCEND CREDIT CORPORATION LESSEE: BLUESTAR COMMUNICATIONS, INC.
BY: /S/ Michael F. Ashby BY: /S/ Fredjoseph Goldner
------------------------------ -------------------------------
NAME: Michael F. Ashby NAME: Fredjoseph Goldner
------------------------------ -------------------------------
Print
TITLE: CFO TITLE: CFO/President
------------------------------ -------------------------------
DATE: 8/5/98 DATE: 7/29/98
------------------------------ -------------------------------
<PAGE> 1
EXHIBIT 10.7
SECURED PROMISSORY NOTE
$1,000,000
August 8, 1998
FOR VALUE RECEIVED, the undersigned, BLUESTAR COMMUNICATIONS, LLC
("Borrower"), hereby promises to pay to ASCEND COMMUNICATIONS, INC. ("Lender"),
or order, the principal sum or so much of the principal sum of One Million
Dollars ($1,000,000) as may from time to time have been advanced and be
outstanding, together with accrued interest as provided herein.
A. Working Capital Facility.
1. Advances. Borrower may at any time and from time to time request
advances from Lender for the purpose of funding Borrower's working capital needs
(individually an "Advance" and collectively the "Advances") by giving written
notice to Lender in accordance with the terms hereof, which notice shall
indicate (i) the amount of the Advance requested, and (ii) the proposed use of
the Advance proceeds. No more than two (2) Advances may be made hereunder.
In the case of the first Advance requested (the "First Advance"),
Lender shall make such Advance within five (5) days of receipt of Borrower's
notice, provided that each of the following conditions are satisfied or waived
by Lender, in its sole discretion, (i) no Event of Default or Potential Default
is in existence and the First Advance would not cause an Event of Default or
Potential Default to occur, and (ii) Borrower has submitted, and Lender has
accepted, purchase orders for equipment of Lender ("Lender Equipment") with an
aggregate purchase price of not less than Two Million Dollars ($2,000,000), and
has agreed to take delivery of Lender Equipment with an aggregate purchase price
of not less than Four Hundred Thousand Dollars ($400,000) during each calendar
month during the five (5) month period commencing after the date of the First
Advance. The principal amount of the First Advance may not exceed Five Hundred
Thousand Dollars ($500,000).
In the case of the second Advance requested (the "Second Advance"),
Lender shall make such Advance within five (5) days of receipt of Borrower's
notice, provided that each of the following conditions are satisfied or waived
by Lender, in its sole discretion, (i) no Event of Default or Potential Default
is in existence and the Second Advance would not cause an Event of Default or
Potential Default to occur, (ii) Borrower demonstrates, to Lender's reasonable
satisfaction, that Borrower obtained three (3) revenue generating customers in
the Nashville, Tennessee location by October 1, 1998, (iii) Borrower raised not
less than Five Hundred Thousand Dollars ($500,000) in equity financing from
third parties on terms and conditions that are acceptable to Lender in its good
faith judgment, (iv) Borrower has achieved, no later than March 31, 1999,
revenues of not less than seventy-five percent (75%) of the revenues that
Borrower projected in the Business Plan that it would achieve by December 31,
1998, (v) Borrower has accepted delivery of Lender Equipment in accordance with
clause (ii) of the conditions of the First Advance, and (vi) Borrower has agreed
to accept delivery of equipment sold by Lender
1
<PAGE> 2
(A) during the calendar quarter ending March 30, 1999, with an aggregate
purchase price of not less than Two Million Dollars ($2,000,000), (B) during the
calendar quarter ending June 30, 1999, with an aggregate purchase price of not
less than Two Million Dollars ($2,000,000) and (C) during the calendar quarter
ending September 30, 1999, with an aggregate purchase price of not less than
Three Million Dollars ($3,000,000). The Second Advance may not be made before
January 1, 1999, or after June 30, 1999, and the principal amount hereof may not
exceed Five Hundred Thousand Dollars ($500,000).
Borrower shall not have the right to re-borrow an Advance to the extent that it
has been repaid.
2. Interest.
(a) Interest Rate. Interest shall accrue with respect to the
principal amount of each Advance at the per annum rate equal to the Prime Rate.
However, if an Event of Default, as defined herein, occurs, then during the
continuance of such Event or Default interest shall accrue at the Default Rate.
Interest payable hereunder with respect to each Advance 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 each Advance 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 each Advance in arrears on the first day of each calendar month,
commencing with the first (1st) month after the date thereof.
3. Principal Payments.
(a) Scheduled Payments.
(1) First Advance. The principal indebtedness of the First
Advance shall be payable in thirty (30) monthly installments, based on a three
(3) year amortization schedule for a thirty (30) month term, with the first
installment due on the first day of the seventh (7th) calendar month commencing
after the date of the First Advance. All principal outstanding and interest
accrued but unpaid with respect to the First Advance shall be due and payable as
the thirtieth (30th) installment.
(2) Second Advance. The principal indebtedness of the Second
Advance shall be payable in twenty-four (24) monthly installments, based on a
three (3) year amortization schedule for a twenty-four (24) month term, with the
first installment due on the first day of the seventh (7th) calendar month
commencing after the date of the Second Advance. All interest accrued but unpaid
with respect to the Second Advance shall be due and payable with the
twenty-fourth (24th) principal installment.
(b) Mandatory Prepayment. The principal indebtedness and all accrued
but unpaid interest with respect to the Advances shall become immediately due
2
<PAGE> 3
and payable, without demand or any notice by Lender, on the date of the first to
occur of (i) the date on which Borrower receives the proceeds raised on the IPO
or (ii) the date of a Change of Control.
4. 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
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 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 calendar month, and
in any event within thirty (30) days thereafter, an unaudited balance sheet of
Borrower as of the end of such month, cash flow statements and an unaudited
statement of operations of Borrower for the portion of the Fiscal Year ended
with such month prepared and certified by the chief financial 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;
3
<PAGE> 4
(c) as soon as available, and in any event prior to the commencement
of each Fiscal Year, a budget and business plan for Borrower for such Fiscal
Year;
(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 reasonable requested by Lender.
3. Board Observation Rights. During the term hereof, Borrower shall
permit one (1) representative of Lender to attend all meetings of the Board of
Directors of Borrower and of the committees thereof.
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 as described in Attachment"A" 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 reasonable 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;
4
<PAGE> 5
(ii) Borrower's breach of the covenant with respect to the use of
the Advance proceeds or of the covenant with respect to acquisition of equipment
exclusively from Lender;
(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
sixty (60) days;
(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, or any
attempt to create, any Lien upon any of the Collateral, other than the Permitted
Liens, or the making or attempt to make any levy, seizure or attachment thereof
and such Lien, levy, seizure, or attachment has not been removed, discharged or
rescinded with ten (10) days;
(vi) lease, including the Equipment Lease Agreement, 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 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
5
<PAGE> 6
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 Lender
arising out of the retention or 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
6
<PAGE> 7
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.
(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 is or becomes the beneficial owner of shares
representing more than fifty percent (50%) of the combined voting power of the
then outstanding membership units or other securities entitled to vote generally
in elections of Borrower's directors (the "Voting Stock"), (ii) other than in
connection with its conversion to a corporation, Borrower consolidates with or
merges into any other entity, or conveys, transfers or leases all or
substantially all of its assets to any person, or any other entity merges into
Borrower, and, in the case of any such transaction, Borrower's outstanding
membership units or other securities are changed or exchanged as a result,
unless the Borrower's members or 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 entity 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 following, whether now existing or owned hereafter created
or acquired by Borrower:
a. All goods and equipment, including, without limitation, all
machinery, fixtures, vehicles (including motor vehicles and trailers), and any
interest in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located, financed by Lender hereunder or under the Equipment
Lease Agreement; and
b. All claims, rights and interests in any of the above and,
all substitutions for, additions and accessions to and proceeds thereof.
7
<PAGE> 8
"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.
"Equipment Lease Agreement" means the Master Lease Agreement, dated
as of the date hereof, between Borrower and Lender.
"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 or the
benefit of creditors, formal or 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 of exceeds Ten Million Dollars
($10,000,000).
"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 carrier's,
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 "A" hereto.
"Potential Default" means any event or condition that with the
passage of time, the giving of notice or both would constitute an Event of
Default.
8
<PAGE> 9
"Prime Rate" means as of any date the per annum rate equal to the
"Prime Rate" as listed in The Wall Street Journal Money Rates report as of the
last day of the calendar month preceding such date.
"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 conviens 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 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: (501) 747-2638
If to Borrower BlueStar Communications, LLC
131 Second Avenue North, Suite 500
Nashville, Tennessee 37201
Attention: Fredjoseph Goldner
Telecopier: (615-255-2102)
9
<PAGE> 10
With a Copy to: Wyatt, Tarrant & Combs
511 Union Street, Suite 1500
Nashville, Tennessee 37219
Attention: Andrew M. Morin
Telecopier: (615) 256-1726
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. 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, 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 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.
10
<PAGE> 11
7. Amendment Provisions. This Note may not be amended or modified, nor
many 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.
BLUESTAR COMMUNICATIONS, LLC
By: /s/ Fredjoseph Goldner
----------------------------------
REVIEWED AND AGREED TO:
ASCEND COMMUNICATIONS, INC.
By: /s/ Michael F. Ashby
--------------------------
11
<PAGE> 12
ATTACHMENT "A"
TO
SECURED PROMISSORY NOTE
BY
BLUESTAR COMMUNICATIONS, LLC
PERMITTED LIENS
None.
12
<PAGE> 1
EXHIBIT 10.8
- --------------------------------------------------------------------------------
OFFICE BUILDING LEASE AGREEMENT
(FIVE CORPORATE CENTRE)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LEASE DATE: December 31, 1999
LANDLORD: Crescent Resources, Inc., a South Carolina corporation
NOTICE Post Office Box 1003 [zip code 28201-1003] (If delivered by mail)
ADDRESS OF 400 South Tryon Street, Suite 1300 [zip code 28202] (If personally
LANDLORD: delivered or delivered by overnight delivery service or telegram)
Charlotte, North Carolina
Attention: Treasurer Telephone: (704) 382-8009
Facsimile: (704) 382-6385
TENANT: BlueStar Communications, Inc.
NOTICE BlueStar Communications, Inc. (After Lease Commencement
ADDRESS OF 401 Church St., Suite 2400 Address will be Suite 600 of
TENANT: Nashville, TN 37214 Five Corporate Centre)
Attention: Norton Cutler, Esq. Telephone: (615) 255-2100
Facsimile: (615) 346-3875
TENANT'S
CONTACT
PERSON: Norton Cutler Telephone: (615) 255-2100
Facsimile: (615) 346-3877
BUILDING: Six (6) story office building known as Five Corporate Centre located
on the Land at 801 Crescent Centre Drive, Franklin, Williamson
County, Tennessee 37067.
LAND: That certain tract or parcel of land located in Franklin, Williamson
County, Tennessee, and described on Exhibit A attached hereto and
incorporated herein by reference.
PREMISES: Suites 500 and 600 in the Building, as more particularly described
on Exhibit B attached hereto and incorporated herein by reference.
NOC
PREMISES: As shown on exhibit B (4959 square feet)
PREMISES 48,064 square feet located on the following floor(s) in the Building
RENTABLE and a prorata portion of the common area of such Floors and the
AREA: Building: Floor Six and a portion of the Floor Five measured in
accordance with ANSI/BOMA Z65.1-1996).
Common Area factor for multi-tenant floors is 13.5%.
BUILDING 151,833 square feet (measured in accordance with ANSI/BOMA
RENTABLE Z65.1-1996)
AREA:
LEASE TERM: Five (5) years and four (4) months, beginning on the Commencement
Date. Provided, however, if the Commencement Date is any day other
than the first day of a calendar month, the Lease Term shall be
extended automatically until midnight on the last day of the
calendar month in which the Lease Term otherwise would expire.
RENEWAL Tenant may renew the Term of this Lease for two (2) five (5) year
TERMS: terms or one (1) one (1) year term at the end of the original term
only upon compliance with the following conditions:
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
a. Tenant must give notice of renewal (the "Renewal Notice") to
Landlord at least 180 days prior to beginning of a Renewal
Term.
b. No Event of Default by Tenant that is not cured within
applicable notice and cure periods may exist at the time of
giving of the Renewal Notice and/or the beginning of the
Renewal Term.
c. Lease must be in full force and effect at the time of the giving
of the Renewal Notice and/or the beginning of the Renewal Term.
d. All terms and conditions of original five (5) year term shall
apply to each Renewal Term except the Rent shall be as set
forth in Exhibit D.
TERM
COMMENCEMENT May 1, 2000 (but subject to extension as set forth in Section
DATE: Two of this Lease)
RENT
COMMENCEMENT
RENT September 1, 2000 (intended to be four (4) months [the "Nonpayment
Period"] immediately following the Term Commencement Date unless
Tenant Delay Factors exist). The Non-payment Period may also be
reduced pursuant to Section 2(a) and 2(e)(1) of the Lease.
BASE RENT: As set forth on Exhibit D.
BASE RENT
ADJUSTMENTS: As set forth in Exhibit D.
OPERATING
EXPENSE
BASE YEAR: Year 2000
ELECTRICAL
EXPENSE STOP: ($0.65) multiplied by the Building Rentable Area, which is a part of
the Operating Cost Expense Stop.
ADVANCE
BASE RENTAL
PAYMENT: N/A.
SECURITY
DEPOSIT: N/A.
TENANT'S
PROPORTION-
ATE SHARE: Premises Rentable Area / Building Rentable Area = 31.65%
TENANT
IMPROVEMENT
ALLOWANCE: $18.00 per rentable square foot contained in the Premises.
TENANT PLANS
AND SPECIFIC- Plan Submission Deadline: Tenant agrees to cause the construction
ATIONS: plans for the Tenant Improvements, excluding the NOC) to be
submitted to Landlord's engineers not later than January 7, 2000.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
NOC Plan Submission Deadline: Tenant agrees to cause the
Construction Plans for the Tenant Improvements for its Network
Operating Center (the "NOC") to be submitted to Landlord's engineers
not later than February 7, 2000.
PARKING
RATIO: Five (5) space(s) per 1,000 rentable square feet contained in
the Premises.
BROKER: Trammell Crow Company
155 Franklin Road - Suite 225
Brentwood, TN 37027
Agent: Rick Helton
</TABLE>
The foregoing summary (the "Lease Summary") is hereby incorporated into and made
a part of the Lease Agreement. In the event, however, of a conflict between the
terms of the Lease Summary and the terms of the Lease Agreement, the former
shall control.
Initial: ____ (For Landlord)
Initial: ____ (For Tenant)
<PAGE> 4
crescent\bluestar.lse
LEASE
1. LEASE OF PREMISES.
Landlord (as set forth in the Lease Summary), for and in consideration
of payment of the Rent and the covenants herein to be performed by Tenant (as
set forth in the Lease Summary), does hereby lease unto Tenant and Tenant does
hereby lease from Landlord the Premises upon the following terms and conditions.
2. TERM.
(a) The Term of this Lease shall commence on the Term Commencement Date
and Tenant's obligation to pay Base Rent and Additional Rent hereunder shall
commence on the Rent Commencement Date. Improvement Complete shall mean the last
to occur of (1) the Premises having been substantially complete according to
Tenant's plans and specifications (except for punch list items) and Tenant can
move its furniture into the Premises (2) delivery of a certificate of
substantial completion signed by Landlord's architect or (3) delivery of a
Certificate of Occupancy issued by the City of Franklin, Tennessee permitting
furniture installation in the Premises. In the event the Premises are not
Improvement Complete by the Term Commencement Date due to Force Majeure Matters
or Tenant Delay Factors (both as hereinafter defined), Landlord may extend the
time to complete said improvements to the Premises for a period of time equal to
such time as Landlord has been delayed by Force Majeure Matters and/or Tenant
Delay Factors. In the event the Premises are not Improvement Complete in
accordance with the Tenant Plans. In the event Landlord has not caused the
Premises to be Improvement Complete by July 1, 2000, unless Landlord has been
delayed by Tenant Delay Factors, Tenant may terminate this Lease by giving
notice to Landlord not later than August 1, 2000, unless Tenant has taken
occupancy of the Premises. In the event the Term Commencement Date is so
extended, Landlord and Tenant shall execute a supplemental agreement to confirm
the Term Commencement Date once it has been determined. In the event Tenant
occupies the Premises at any time prior to the Term Commencement Date, Tenant's
occupancy shall be subject to all the terms and conditions of this Lease, except
rent payments and payment of Tenant's Proportionate Share of Operating Expenses
both of which shall commence on the Rent Commencement Date. In the event the
Term Commencement Date is extended by Landlord, the parties agree to execute a
Commencement Date Agreement which shall establish the Term Commencement Date and
the Rent Commencement Date so that the Rent Commencement Date is four (4) months
after the Term Commencement Date. The Non-Payment Period shall be reduced by the
period of time equal to the period of time Landlord is delayed in causing the
Premises to be Improvement Complete due to Tenant Delay Factors. The Non-Payment
Period shall be increased by two (2) days for every day after June 1, 2000 that
the Landlord has not caused the Premises to be Improvement Complete as a result
of any reason except for delays caused by Tenant Delay Factors.
(b) The Tenant shall have the renewal rights as shown in the Lease
Summary.
(c) "Tenant Delay Factors" shall be defined as delays caused by Tenant,
or Tenant's agents, employees, contractors, subcontractors or licensees
including, but not limited to, failure to deliver Tenant Plans by the required
date as set forth in the Workletter and Lease Summary.
(d) "Force Majeure Matters" shall be defined as any delays due to any
condition, matter or circumstance beyond the reasonable control of a party
(collectively, "Force Majeure Matters"; each, a "Force Majeure Matter"),
including, without limitation, the following: strikes; unavailability of
materials; lockouts; acts of God; governmental restrictions, war or enemy action
or invasion; civil commotion, insurrection; riot; mob violence; malicious
mischief or sabotage; fire or any other casualty; adverse weather conditions; a
condemnation; failure of a governmental instrumentality to act in a timely
fashion, any litigation or other legal
<PAGE> 5
proceeding which delays the approval of plans or the issuance of any grading or
building permit for construction, including, without limitation, the issuance of
an injunction enjoining such approval and/or issuance, as the case may be; any
law, order or regulation of any governmental, quasi-governmental, judicial or
military authority; or other similar cause. Without limiting the generality of
the foregoing, in the event a Force Majeure Matter affects Landlord's
construction and delivery obligation(s) relative to the Premises under this
Lease, the Term Commencement Date and Rent Commencement Date shall be extended
by the same number of days as the number of days of delay caused by such Force
Majeure Matter on the critical path of completing such construction and delivery
obligation(s). Except for Tenant's obligations to pay Base Rent, Tenant's
Proportionate Share and any other payments due from Tenant hereunder, the
obligations of both parties under this Lease shall be subject to delays cause by
Force Majeure Matters.
(e) The Tenant Improvement Allowance shall be applied by Landlord
against the costs of designing, planning and constructing the improvements to
the Premises (the "Tenant Improvements") in accordance with the Tenant Plans
which are to be prepared and approved in accordance with the Workletter attached
as Exhibit C. Landlord shall pay for the cost of the Building Shell Improvements
as described in said Workletter. In the event the cost of the Tenant
Improvements exceed the Tenant Improvement Allowance, Tenant shall be
responsible for bearing and paying such excess costs (the "Excess Costs"), as
follows:
(1) The Non-Payment Period shall be reduced, and Tenant shall not
be required to pay Excess Costs until such credit is exhausted.
(2) After the Premises are Improvement Complete but prior to
occupancy of the Premises by Tenant, Tenant shall pay to Landlord an
amount equal to ninety percent (90%) of the Excess Costs (as then
reasonably estimated by Landlord).
(3) As soon as the final accounting is prepared and submitted by
Landlord to Tenant, Tenant shall pay to Landlord the entire unpaid
balance (less 5% of Excess Costs for punch list items) of the actual
Excess Costs based on the final costs to Landlord. The aforesaid
withheld amount shall be promptly paid to Landlord after completion of
all punch list items.
The Excess Costs (if any) payable by Tenant under this Paragraph 2(e)
shall be due hereunder at the time specified herein, and failure to make any
such payment when due shall constitute a default of Tenant under this Lease.
(f) Except as otherwise provided above in this Paragraph 2, all
installations and improvements now or hereafter placed on or in the Premises
shall be for Tenant's account and at Tenant's cost. Tenant shall also pay ad
valorem taxes and increased insurance on or attributable to the Tenant
Improvements (to the extent of the cost of the Tenant Improvements in excess of
the Tenant Improvement Allowance), which cost shall be payable by Tenant to
Landlord as Additional Rent.
3. RENT.
(a) Tenant shall pay to Landlord at its principal office, or at such
other address as Landlord shall designate to Tenant in writing from time to
time, the Base Rent set forth on the Lease Summary and in Exhibit D, payable on
the first business day of each calendar month in the monthly installments as set
forth in Exhibit D, in advance, without demand and without set off, except as
expressly permitted herein, beginning as of the Rent Commencement Date and
continuing until the expiration of the Term.
(b) In the event the Term commences on a day other than the first
business day of a calendar month, the Tenant shall pay to the Landlord, on or
before the Rent Commencement Date, a pro rata portion of the monthly installment
of Base Rent, such pro rata portion to be based on the number of days remaining
in such partial month after the Rent Commencement Date. In event the Term
expires on other than the last business day of a calendar month, the final
month's installment of Base Rent shall be prorated accordingly.
(c) Tenant hereby further covenants and agrees to pay as and when due,
Additional Rent, as hereinafter set forth. Nonpayment of the same when due shall
constitute a default under this Lease to the same extent, and shall entitle the
Landlord to the same remedies as nonpayment of Base Rent.
(d) At Landlord's option, if any payment of Base Rent required to be
made by Tenant under the provisions of this Lease is not made by Tenant within
ten (10) days after the due date and Tenant's receipt of written notice of such
non-payment or any other payment that is not made within thirty (30) days of the
due date, Tenant shall pay a one time late charge equal to five percent (5%) of
the amount due. Landlord shall not be required to give Tenant more than two such
notices in any lease year.
4. TENANT'S PROPORTIONATE SHARE OF OPERATING EXPENSES.
(a) Beginning as of January 1, 2001, Tenant shall pay Landlord as
Additional Rent a sum equal to Tenant's Proportionate Share (as defined below)
of the amount by which Operating Expenses (as defined below) exceed the
Operating Expenses for the Operating Expense Base Year. If the first and/or last
years of the Term shall not coincide with a calendar year, then Tenant's
Proportionate Share of Operating
2
<PAGE> 6
Expenses attributable to the partial calendar year shall be prorated on the
basis of the ratio between the number of days of such partial calendar year and
365. During the Initial Term Controllable Operating Expenses in excess of one
hundred and five percent (105%) of the previous calendar year shall be excluded
from Operating Expenses for the purpose of computing the excess described in the
preceding sentence. "Controllable Operating Expenses" shall mean management fees
and salaries. Landlord agrees to use commercially reasonable efforts to
competitively bid all contracts for services. In addition, any cost incurred by
Landlord in monitoring, reporting, mitigating, removing, encapsulating, or
abating hazardous substances, as defined by laws in effect on the date this
Lease is executed, shall be borne by the Landlord and not included as Operating
Expenses except to the extent that such hazardous substances were placed on the
Premises, Building or Land by the Tenant.
(b) "Tenant's Proportionate Share" shall mean the percentage set forth
in the Lease Summary. In the event of a mutually agreed change in the size of
the Premises, expansion of the Premises or additions to the Premises, the
calculation of Tenant's Proportionate Share shall be revised appropriately as of
the date of such modification by utilizing the same formula.
(c) Operating Expenses shall mean and include:
All expenses relating to the Building, the Land and their common
area and, including all costs of operation, maintenance and management therefor,
ad valorem real estate taxes (excluding interest or penalties for late payment)
and the costs, including, without limitation, of legal and consulting fees, of
contesting or attempting to reduce any of the said taxes (but only to the extent
of the reduction achieved), amortization (in accordance with generally accepted
accounting principles)of capital improvements which are required by applicable
law or which will improve the efficiency of operating, managing or maintaining
the Building or which will reduce Landlord's operating expenses or the rate of
increases thereof, the cost of labor, materials, repairs, insurance, utilities,
and services and such other expenses with respect to the operation, maintenance
and management of the Building, the Land and their common areas, all of which
expenses shall be incurred or paid by or on behalf of Landlord or are properly
chargeable to Landlord's operating expenses in accordance with generally
accepted account principles; as applied to the operation, maintenance and
management of a first class building. The foregoing expenses or costs shall be
grossed up, if necessary, to reflect occupancy of ninety five percent (95%) of
the rentable space in the Building. Provided however, the grossing up of
expenses shall not result in Operating Expenses for the subject year being in
excess of the actual amount of Operating Expenses.
Notwithstanding the foregoing, Operating Expenses shall not include:
(1) costs, including marketing costs, legal fees, space planners' fees,
advertising and promotional expenses, and brokerage fees, incurred in connection
with the original construction or development, or original or future leasing, of
the Building, and costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant improvements made for new
tenants in the Building or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other occupants
of the Building (excluding, however, such costs relating to any Common Areas or
parking facilities);
(2) except as otherwise set forth in this subsection, depreciation,
interest and principal payments on mortgages and other debt costs, if any,
penalties and interest, costs of capital repairs and alterations, and costs of
capital improvements and equipment;
(3) costs for which the Landlord is reimbursed by any tenant or
occupant of the Building (other than pursuant to a provision of such tenant's or
occupant's lease or agreement which otherwise provides that such tenant or
occupant will pay a certain share of such costs) or by any warranty or guaranty
or by insurance by its carrier or any tenant's carrier or by anyone else, and
electric power costs for which any tenant directly contracts with the local
public service company;
(4) any bad debt loss, rent loss, or reserves for bad debts or rent
loss;
(5) costs associated with the operation of the business of the entity
which constitutes the Landlord, as the same are distinguished from the costs of
operation of the Property (which shall specifically include, but not be limited
to, accounting costs associated with the operation of the Property). Costs
associated with the operation of the business of the entity which constitutes
the Landlord include costs of corporate accounting and legal matters, costs of
defending any lawsuits with any mortgages (except as the actions of the Tenant
may be in issue), costs of selling, syndicating, financing, mortgaging or
hypothecating any of the Landlord's interest in the Property, and costs incurred
in connection with any disputes between Landlord and its employees between
Landlord and Property management, or between Landlord and other tenants or
occupants, and Landlord's general corporate overhead and general and
administrative expenses;
(6) the wages and benefits of any employee who does not devote
substantially all of his or her employed time to the Property unless such wages
and benefits are prorated to reflect time spent on operating and managing the
Property vis-s-vis time spent on matters unrelated to operating and managing the
Property; provided, that in no event shall Operating Expenses for purposes of
this Lease include wages and/or benefits attributable to personnel above the
level of Building manager or Building engineer;
3
<PAGE> 7
(7) amount paid as ground rental for the Property by Landlord;
(8) except for a Property management fee charged by Landlord which will
not exceed the market rate, overhead and profit increment paid to the Landlord
or to subsidiaries or affiliates of the Landlord for services in the Building to
the extent the same exceeds the costs of such services rendered by qualified,
first-class unaffiliated third parties on a competitive basis;
(9) any compensation paid to clerks, attendants or other persons in
commercial concessions operated by the Landlord;
(10) rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment which if purchased the cost
of which would be excluded from Operating Expenses as a capital cost under item
(b) above, except equipment not affixed to the Building such as the fitness
center equipment or which is used in providing janitorial or similar services
and, further excepting from this exclusion such equipment rented or leased to
remedy or ameliorate an emergency condition in the Building;
(11) all items and services for which Tenant or any other tenant in the
Building reimburses Landlord (other than pursuant to a provision of such
tenant's or occupant's lease or agreement which is similar to that provided for
in Article Four hereof or which otherwise provides that such tenant or occupant
will pay a certain share of such costs) or which Landlord provides selectively
to one or more tenants without reimbursement;
(12) costs, other than those incurred in ordinary maintenance and
repair, for sculpture, paintings, fountains or other objects of art;
(13) any costs expressly excluded from Operating Expenses elsewhere in
this Lease;
(14) rent for any office space occupied by Property management
personnel to the extent the size or rental rate of such office space exceeds the
size of fair market rental value of office space occupied by management
personnel of comparable buildings in the vicinity of the Building, with
adjustment where appropriate for the size of the applicable project;
(15) costs arising from the gross negligence or willful misconduct of
Landlord or its agents, employees, vendors, contractors, or providers of
materials or services;
(16) costs incurred to comply with laws relating to the removal of
hazardous material (as defined under applicable law) which was in existence in
the Building or on the Property prior to the Commencement Date, and was of such
a nature that a federal, State or municipal governmental authority, if it had
then had knowledge of the presence of such hazardous material, in the state, and
under the conditions that it then existed in the Building or on the Property,
would have then required the removal of such hazardous material or other
remedial or containment action with respect thereto; and costs incurred to
remove, remedy, contain, or treat hazardous material, which hazardous material
is brought into the Building or onto the Property after the date hereof by
Landlord or any tenant of the Building and is of such a nature, at that time,
that a federal, State or municipal governmental authority, if it had then had
knowledge of the presence of such hazardous material, in the state, and under
the conditions, that it then exists in the Building or on the Property, would
have then required the removal of such hazardous material or other remedial or
containment action with respect thereto;
(17) costs arising from Landlord's charitable or political
contributions;
(18) any gifts provided to any entity whatsoever, including, but not
limited to, Tenant, other tenants, employees, vendors, contractors, prospective
tenants and agents; and
(19) the cost of any magazine, newspaper, trade or other subscriptions.
(20) the cost of correcting defects in the construction, structural
components, design or equipping of the Building or the equipment or mechanical
systems of the Building.
(21) the cost of repairs or replacements incurred by reason of fire or
other casualty or caused by the exercise of the right of eminent domain
(including pursuant to Section 10 or 11 of this Lease) whether or not insurance
proceeds or a condemnation award are recovered or adequate for such purposes.
(22) interest, fines or penalties paid by Landlord which are not the
result of action or inaction of Tenant.
(23) any costs related to asbestos or to causing any part of the
Building to be in compliance with the Americans With Disabilities Act (or other
law relating to handicapped persons) or Occupational and Safety Health Act in
effect on the date this Lease is executed.
If any Operating Expense, though paid in one year, relates to more than one
calendar year, at the option of Landlord such expense may be proportionately
allocated among such related calendar years.
(d) The Operating Expense Base Year shall be defined as set forth in
the Lease Summary.
4
<PAGE> 8
(e) It is acknowledged and agreed that it will not be possible to
determine the actual amount of the excess (if any) of Operating Expenses for a
given calendar year over Operating Expenses for the Operating Expense Base Year
until after the end of such calendar year. Therefore, until Tenant's liability
for Tenant's Proportionate Share of such excess shall have been finally
determined for a particular calendar year, Tenant shall make payment on account
of such excess as follows:
(i) Commencing as of January 1, 2001 and continuing throughout
the Term (and any renewal or extension thereof), and subject to the limitation
expressed above, Landlord shall make a good faith estimate of Operating Expenses
for such calendar year and Tenant's Proportionate Share thereof (hereinafter
("Estimated Operating Expenses" and "Tenant's Estimated Proportionate Share"),
and Tenant shall pay to Landlord, as Additional Rent with each monthly
installment of Base Rental, an amount equal to one-twelfth (1/12) of Tenant's
Estimated Proportionate Share of the amount by which Estimated Operating
Expenses for the current calendar year are estimated to exceed the Operating
Cost Expense Stop. Such payments for any partial month shall be paid in advance
at the daily rate equal to the monthly payment divided by the number of days in
the month for which the same is due. On or about December 1 prior to each
calendar year in respect of which Tenant shall be obligated to make payments on
account of excess Operating Expenses during the Term (and any renewal of
extension thereof), Landlord shall furnish to Tenant a statement for such
calendar year of Tenant's Estimated Proportionate Share and of Estimated
Operating Expenses and thereupon, subject to the limitations expressed above, as
of such December 1, Tenant shall make payments under this Paragraph 4(e)(l) in
accordance with such statement.
(ii) On or before April 1, 2002 and each April 1 thereafter during
the Term (and any renewal or extension thereof), Landlord shall furnish Tenant
with a statement setting forth the total amount of Tenant's Proportionate Share
of the amount by which Operating Expenses for the preceding calendar year
exceeded the Operating Expenses for the Operating Expense Base Year. If any such
statement shall show an overpayment or underpayment of Tenant's Proportionate
Share of excess Operating Expenses for the preceding calendar year, any
overpayment shall be refunded to Tenant or credited against payments due from
Tenant under this Lease, and the full amount of any underpayment shall be paid
to Landlord by Tenant not later than thirty (30) after such statement shall have
been delivered to Tenant.
(iii) In the event Tenant is required to pay Tenant's Proportionate
Share of Operating Expenses pursuant to this Paragraph 4 Tenant shall have the
right, at Tenant's expense and no more frequently than once per calendar year,
to inspect Landlord's books and records showing Operating Expenses for the
calendar year in question; provided, however, Tenant shall not have the right to
withhold any payments of Tenant's Proportionate Share of excess Operating
Expenses due and payable hereunder the amount of which may be in dispute, and
Tenant must pay the entire amount due and payable hereunder prior to reviewing
Landlord's books and records. In the event Tenant's inspection of Landlord's
books and records reveals a verifiable error in Landlord's computation of
Tenant's Proportionate Share of excess Operating Expenses resulting in an
overpayment by Tenant, Landlord shall reimburse Tenant for such overpayment.
Further, if such inspection reveals an overcharge of more than three percent
(3%), Landlord shall reimburse the cost of such inspection. Landlord's statement
setting forth the total amount of Tenant's Proportionate Share of excess
Operating Expenses furnished to Tenant in accordance with the provisions of this
Paragraph 4 shall be deemed to have been approved by Tenant unless protested by
Tenant in writing within one (1) year after delivery of the Statement or an
amended Statement to Tenant at the Premises.
(f) Any contest by Landlord of ad valorem real estate taxes shall not
relieve Tenant of the obligation to continue to make payments of Tenant's
Proportionate Share of Operating Expenses during the pendency of such a contest;
provided that promptly upon reduction in the amount of any such taxes, Landlord
shall credit Tenant for Tenant's Proportionate Share of such savings, or refund
the same to Tenant if this Lease has expired or terminated.
(g) Landlord will at Landlord's expense (not included in the Tenant
Improvement Allowance) install an electrical check meter (a "Check Meter") for
the Premises as part of the Tenant Improvements. The Check Meter will measure
all electricity supplied to the Premises (i) to operate lights and light
fixtures therein, (ii) to operate equipment and fixtures that are connected to
electrical outlets therein and (iii) to operate any HVAC system or unit that
exclusively serves the Premises (or any portion thereof). Landlord shall pay the
local electrical utility company prior to delinquency for the electricity
supplied to the Premises through the Check Meter. Provided, however, in the
event the amount paid by Landlord to the local electrical utility company for
electricity supplied to the Premises (as measured by the Check Meter) for any
given period of time is greater than the allocable portion of the Electrical
Expense Stop (allocated the Premises for the relevant period of time), Landlord
may submit an invoice to Tenant periodically for the cost of such excess
electricity supplied to the Premises and Tenant shall pay the full invoiced
amount (as Additional Rent) to Landlord within thirty (30) days after Tenant's
receipt of each such invoice. The following formula shall be used to determine
the invoice amount for Tenant's excess electrical usage in the Premises:
Invoice Amount = Total Electrical Costs Per Check Meter - [(Tenant
Proportionate Share x Electrical Expense Stop) x
(Number of Days in Period / Number of Days in Year)]
For example, presuming (for the purpose of this illustration only) that the
Premises Net Rentable Area is 10,000 square feet, that the Check Meter indicates
$2,000.00 of electricity was supplied to the Premises during a given 90-day
period and that the calendar year in which such 90-day period falls contains 365
days,
5
<PAGE> 9
Landlord shall be entitled hereunder to send an invoice to Tenant in the amount
of $566.64 for excess electrical usage in the Premises during such 90-day
period, computed as follows:
Invoice Amount = $2,000.00 - [.051 x $98,691.45) x (90 / 365)]
= $2,000.00 - [$5,033.26 x .2466]
= $2,000.00 - $1,241.20
= $758.80
In computing invoices to be sent to Tenant for electricity supplied to the
Premises through the Check Meter, Landlord shall use the same billing rate and
structure as used by the local electrical utility company. Additionally, with
regard to any period of time that Landlord elects to use a Check Meter to bill
Tenant for excess electricity supplied to the Premises, Landlord also shall use
a Check Meter to bill other tenants in the Building for excess electricity
supplied to their respective premises; and in such case, the cost of electricity
supplied to the Premises and to other premises in the Building for which
Landlord separately bills Tenant and other tenants in the Building (i.e., such
electrical costs that exceed the Electrical Expense Stop) shall not be included
in Operating Expenses hereunder. Landlord shall be entitled to bill Tenant
pursuant to this Section 4(g) for excess electrical usage in the Premises
determined by Landlord from time to time during the Lease Term.
(h) Base Rent and Additional Rent may from time to time be referred to
herein collectively as "Rent".
5. USE OF PREMISES.
Tenant shall use and occupy the Premises, only for the following
purposes: general office, network operations, lab space, technical space,
storage and other incidental uses. Tenant shall not use or occupy the Premises
for any other purposes or business without the prior written consent of
Landlord. Tenant covenants and agrees to comply with each of the Rules and
Regulations set forth in Exhibit E. Landlord represents and warrants that any
certificate of occupancy for the Building is not violated by the aforementioned
uses, and that such uses are permitted by all applicable governmental laws,
ordinances, rules and regulations. Landlord acknowledges that Tenant will have
no obligation under this Lease to actually occupy the Premises during the Term.
In the event Tenant fails to occupy the Premises during all or any portion of
the Term or in the event Tenant vacates the Premises prior to the expiration or
earlier termination of this Lease, such action or omission, as the case may be,
shall not constitute an event of default hereunder.
6. REPAIRS.
(a) Except as provided herein, Tenant shall keep the interior,
non-structural portions of the Premises in good repair, and Tenant shall upon
the expiration of the term of this Lease, yield and deliver up the Premises in
good and tenantable condition ordinary wear and tear and damage by fire or other
casualty excepted.
(b) In the event that the Landlord shall reasonably deem it necessary
or be required by any governmental authority to repair, alter, remove,
reconstruct or improve any part of the Premises or of the Building in which the
Premises are located (unless the same result from Tenant's act, neglect, default
or mode of operation and the same is not covered by Landlord's insurance in
which event Tenant shall make all such repairs, alterations and improvements),
then the same shall be made by Landlord at Landlord's sole cost and expense with
reasonable dispatch; provided, however, the making of such repairs, alterations
or improvements shall not interfere with Tenant's use of the Premises or a
reduction of the usable square footage in the Premises.
(c) Landlord shall (i) operate, manage and maintain the Building as a
first class office building; (ii) provide services to the common areas thereof
in a manner consistent therewith; and (iii) make all repairs necessary to
maintain the Building in good working order and repair, including, without
limitation, repairs that arise out of or relate to (A) the Building systems and
the structural elements of the Building and the Premises (including, but not
limited to, the heating, ventilation, air conditioning, sanitary, water,
electrical power, lighting, sprinkler, elevator and fire safety systems, toilets
and plumbing facilities, floor slabs, walls, roof and exterior architectural
finish); (B) the negligence or wrongful act(s) of Landlord, its agents,
employees or contractors; or (C) Landlord's breach of its obligations under the
Lease.
7. ALTERATIONS AFTER THE INITIAL IMPROVEMENTS.
Tenant may make non-structural alterations, additions, repairs,
improvements or changes in or to Premises without the prior written consent of
Landlord. All such alterations, additions or improvements (collectively the
"Additions") made by Tenant, not including moveable office furniture and
equipment, which are attached or affixed to the Premises so as to become an
integral part thereof shall become a part of the Premises when made. Tenant
agrees to hold Landlord forever harmless from any and all claims and liabilities
(except those arising out of Landlord's sole negligence or willful misconduct)
which may arise out of or be connected with said improvements, alterations or
additions and agrees that if any contractor,
6
<PAGE> 10
subcontractor or materialmen's lien is filed against the Premises or the Land
and Building as a result of Tenant's Additions or other work, Tenant shall cause
the same to be discharged within thirty (30) days after the same are filed. All
such improvements, alterations, additions or installations shall comply with all
insurance requirements and with all laws, ordinances, rules and regulations of
all Governmental Authorities.
8. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign or transfer, this Lease or sublet all or
any part of Premises without having received Landlord's prior written consent,
which consent shall not be withheld by Landlord if the assignee or subtenant is
compatible with the tenant mix of a Class A office building in Landlord's
reasonable discretion. Provided however, Tenant shall have the right to assign
or transfer this Lease, or sublet all or any part of the Premises, to a parent,
affiliate or subsidiary of Tenant or to an entity acquiring all or substantially
all of the assets of Tenant or in connection with a merger or consolidation
without the prior written consent of Landlord. No such written consent or
approval, if granted, shall be deemed to permit any subsequent assignment or
subletting.
(b) Regardless of Landlord's consent, no subletting or assignment shall
release Tenant of Tenant's obligation or alter the primary liability of Tenant
to pay Base Rent, Tenant's Proportionate Share and Additional Rent and to
perform all other obligations to be performed by Tenant hereunder. The
acceptance of rental by Landlord from any other person shall not be deemed to be
a waiver by Landlord of any provision hereof. In the event of default by any
assignee of Tenant or any successor of Tenant in the performance of any of the
terms hereof, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such assignee or successor. Landlord may consent
to subsequent assignment or subletting of this Lease or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and such action shall not relieve Tenant of liability under this Lease. Tenant
shall be entitled to retain all profit from any permitted assignment or
subletting.
9. INDEMNIFICATION AND TENANT'S LIABILITY INSURANCE.
(a) Each party shall indemnify and hold harmless the other party from
and against any and all costs, expenses, (including reasonable counsel fees),
liabilities, losses, damages, suits, actions, fines, penalties, claims or
demands of any kind and asserted by or on behalf of any person or Governmental
Authority, arising out of or in any way connected with, and neither party shall
not be liable to the other on account of (i) any failure by the other party to
perform any of the agreements, terms, covenants or conditions of this Lease
required to be performed by the other party (ii) any failure by the other party
to comply with any statutes, ordinances, regulations or orders of any
Governmental Authority, or (iii) any accident, death, or personal injury, or
damage to or loss or theft of property, which shall occur in or about the
Premises occasioned wholly or in part by reason of any act or omission of
Tenant, its agents, contractors, licensees, invitees or employees.
(b) During the term of this Lease or any renewal thereof, Tenant shall
obtain and promptly pay all premiums for general public liability insurance
against claims for personal injury, death or property damage occurring upon, in
or about the Premises with carriers and in amounts reasonably satisfactory to
Landlord but with minimum limits of not less than One Million Dollars
($1,000,000.00) combined single limit on account of bodily injuries or death or
damage to property and all such policies and renewals thereof shall name the
Landlord and any mortgagee of Landlord and the Tenant as additional insureds.
All policies of insurance shall provide (i) that no material change or
cancellation of said policies shall be made without thirty (30) days' prior
written notice to Landlord and Tenant, (ii) that any loss shall be payable
notwithstanding any act or negligence of the Tenant or the Landlord which might
otherwise result in the forfeiture of said insurance, and (iii) that the
insurance company issuing the same shall not have right of subrogation against
the Landlord or Landlord's insurer. On or before the Term Commencement Date of
the term of this Lease, and thereafter not less than fifteen (15) days prior to
the expiration dates of said policy or policies, Tenant shall provide copies of
policies or certificates of insurance evidencing coverages required by this
Lease. All the insurance required under this Lease shall be issued by insurance
companies authorized to do business in the State of Tennessee and reasonably
acceptable to Landlord.
10. FIRE OR OTHER CASUALTY.
(a) If the Premises are partially damaged by fire or other casualty so
that the Premises are not materially unusable by Tenant, the damages shall be
repaired by Landlord and until such repairs shall be substantially completed,
and Rent shall be abated proportionately from the date of such fire or other
casualty according to the part of the Premises which is unusable by Tenant.
Landlord agrees to repair such damage within a reasonable period of time after
receipt of notice of such damage, subject to any delays caused by Force Majeure
Matters. Landlord shall notify Tenant within thirty (30) days following the date
of the casualty of (i) the estimated repair period; and (ii) if Landlord is
entitled to terminate this Lease, whether Landlord elects to do so.
(b) Any thing above to the contrary notwithstanding, if the Premises or
Building are damaged by fire or other casualty and, are rendered substantially
unusable by reason of such fire or other casualty
7
<PAGE> 11
and such damage cannot be repaired using reasonable diligence within one hundred
and twenty (120) days either Landlord or Tenant shall have the right to
terminate this Lease. Said right shall be exercised by notice in writing
delivered to Tenant within thirty (30) days from and after notice from the
Landlord to Tenant of the amount of time to restore, to terminate this Lease. In
such event, this Lease and the tenancy hereby created shall cease as of the date
of said casualty. Tenant shall also have the right to terminate this Lease if
Landlord does not fully restore the Premises within one hundred eighty (180)
days following the casualty, or if the Premises are rendered untenantable within
the last twelve (12) months of the Term.
(c) Landlord's liability for the repair of damage resulting from fire
or other casualty shall not exceed in any event the amount of insurance proceeds
actually paid to Landlord by the insurance carrier free and prorated between all
tenants of the Building whose leased premises have suffered damage. Landlord
shall not be liable for any inconvenience or annoyance to Tenant or injury to
the business of Tenant resulting in any way from such damage or the repair
thereof, provided Landlord used reasonable efforts to complete said restoration
in a manner which causes as little inconvenience to Tenant as necessary under
the circumstances.
11. CONDEMNATION.
(a) If the entire Building and Land, any portion thereof which includes
a substantial part of the Premises or such portions which prevent the operation
of the Building on a financially sound basis, shall be taken or condemned by any
condemning authority for any public use or purpose, or should be sold in lieu of
condemnation or if Tenant reasonably determines that it cannot operate its
corporate headquarters and operations from the remaining Premises the term of
this Lease shall end upon, and not before, the date when the possession of the
part so taken shall be required for such use or purpose, and without
apportionment of the condemnation award which shall be the sole property of the
Landlord. Tenant expressly subordinates its interest in any award to the right
of any first deed of trust holder to have its indebtedness satisfied from said
award.
(b) If this Lease is not so terminated upon any such taking or sale and
if a portion of the Premises is affected thereby, the Base Rent payable
hereunder shall be diminished by an equitable amount, and Landlord shall, to the
extent Landlord deems feasible, restore the Building and the Premises to
substantially their former condition, except Landlord's obligation to restore
shall not exceed the amount of condemnation proceeds actually received by
Landlord and prorated between all tenants of the Building whose leased premises
have been damaged.
(c) To the extent Tenant can make a separate claim from the condemning
authority (and not reduce the amount of Landlord's award), Tenant may claim and
receive therefrom Tenant's moving expenses, and the value of Tenant's fixtures
and improvements. Tenant waives any claim it may have for the value of the
unexpired term of this Lease.
12. QUIET ENJOYMENT.
If and so long as Tenant pays the Rent reserved hereunder and other
sums due hereunder and observes and performs all of the covenants, conditions
and provisions on Tenant's part to be observed and performed hereunder within
applicable notice and cure periods, Tenant shall and may peaceably and quietly
have, hold and enjoy the Premises for the entire term hereof, subject to all
provisions of this Lease.
13. SUBORDINATION AND ATTORNMENT.
Without limitation of any of the provisions of this Lease, and provided
Tenant's possession during the Term shall not be distributed so long as Tenant
is not in default under the terms hereof, this Lease is subject and subordinate
to all first mortgages or deeds of trust which may now or hereafter affect the
real property of which the Premises form a part, and to all renewals,
modification, consolidations, replacements and extensions thereof unless
otherwise required by any mortgagee or beneficiary under any deed of trust or
ground lessor. Upon the written request of any such owner, purchaser, lessor or
mortgagee, or beneficiary (the "Beneficiary") under any deed of trust, Tenant
agrees to execute a subordination non-disturbance and attornment agreement
confirming such subordination provided the Beneficiary agrees not to disturb
Tenant's possession during the term of this Lease so long as Tenant is not in
default under the terms hereof. Landlord warrants no mortgages or deeds of trust
currently encumber the Building.
14. WAIVER OF CLAIMS.
Unless caused by their negligence, willful misconduct or breach of this
Lease, Landlord and Landlord's agents, servants, and employees shall not be
liable for, and Tenant hereby releases and relieves Landlord, its agents,
servants, and employees from all liability in connection with any and all loss
of life, personal injury, damage to or loss of property, or invitees, licensees,
visitors, or any other person, firm, corporation or entity, in or about or
arising out of, in or upon the Premises, the Building, or the Land.
15. LANDLORD'S OBLIGATIONS.
Landlord's obligations hereunder shall be binding upon Landlord only
for the period of time that Landlord is in ownership of the Building; and upon
termination of that ownership, Tenant, except as to any
8
<PAGE> 12
obligations which have then matured, shall look solely to Landlord's successor
in interest in the Building for the satisfaction of each and every obligation of
Landlord hereunder provided such successor assumes in writing the obligations of
Landlord. Landlord shall provide the Cleaning and Janitorial Services set forth
in Exhibit G and the services set forth on Exhibit H.
16. WAIVER.
The failure or delay on the part of either party to enforce or exercise
at any time any of the provisions, rights or remedies in this Lease shall in no
way be construed to be a waiver thereof, nor in any way to affect the validity
of this Lease or any part hereof, or the right of the party to thereafter
enforce each and every such provision, right or remedy. No waiver of any breach
of this Lease shall be held to be a waiver of any other or subsequent breach.
The receipt by Landlord of Rent, or any other payment by Tenant at a time when
the Rent or the payment of any other sum due hereunder is in default under this
Lease shall not be construed as a waiver of such default. The receipt by
Landlord of a lesser amount than the Rent or any other sum due shall not be
construed to be other than a payment on account of the Rent or any other sums
then due, which may be applied in such manner as Landlord deems appropriate, nor
shall any statement on Tenant's check or any letter accompanying Tenant's check
be deemed an accord and satisfaction. Landlord may accept any such payment
without prejudice to Landlord's right to recover the balance of the Rent due or
to pursue any other remedies provided in this Lease. No act or thing done by
Landlord or Landlord's agents or employees during the Term of this Lease shall
be deemed an acceptance of a surrender of the Premises, and no agreement to
accept such a surrender shall be valid unless in writing and signed by the
Landlord.
17. DEFAULTS AND REMEDIES.
All rights and remedies of Landlord herein enumerated shall be
cumulative, and none shall exclude any other rights or remedies allowed by law
or in equity. The occurrence of any of the following shall constitute a default
and breach of this Lease by Tenant:
(a) Tenant shall fail, neglect or refuse to pay any installment of Base
Rent promptly within ten (10) days of receipt of Landlord's written notice
(which notice Landlord will not be required to provide more than two times in
any Lease Year, or to pay any other monies agreed to by it to be paid promptly
when and as the same shall become due and payable under the terms hereof; or if
(b) Tenant shall fail, neglect or refuse to keep and perform any of the
other covenants, conditions, stipulations or agreements herein contained, and
such default shall continue for a period of more than thirty (30) days after
notice thereof is given in writing to Tenant by Landlord (provided, however,
that if the cause for giving such notice involves the making of repairs or other
matters reasonably requiring a longer period of time than said thirty (30) day
period, Tenant shall be deemed to have complied with such notice so long as it
has commenced to comply with said notice within said thirty (30) day period and
is diligently prosecuting compliance of said notice);
In the event of any such default or breach of this Lease by Tenant,
Landlord have any or all of the remedies hereunder set forth, and further, in
the event of such default or breach of this Lease by Tenant, the Tenant does
hereby authorize and fully empower Landlord or Landlord's agent to cancel or
annul this Lease at once and re-enter the Premises and remove all persons and
their property therein, and such property may be stored in a public warehouse or
elsewhere at the cost of the Tenant, all without service of notice or resort to
legal process and without being deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used by Landlord. The
foregoing rights reserved to Landlord may be exercised by Landlord only to the
extent permitted by applicable law.
The Landlord may, however, at its option at any time after Tenant's
default re-enter and take possession of said Premises and remove any property
contained therein without such re-entry working a forfeiture of the Rents to be
paid and the covenants, agreements and conditions to be kept and performed by
Tenant for the full term of this Lease. In such event, Landlord shall have the
right, but not the obligation, to divide or subdivide the Premises in any manner
Landlord may determine and to lease or let the same or portions thereof for such
periods of time and at such rentals and for such use and upon such covenants and
conditions as Landlord may elect at its sole discretion, applying the net
rentals from such letting first to the payment of Landlord's expense incurred in
dispossessing Tenant, including, without limitation, reasonable attorney fees,
and the cost and expense of making such improvements, alterations and repairs in
the Premises as may be necessary in order to enable Landlord to re-let the same,
and to the payment of any brokerage commissions or other necessary expenses of
Landlord in connection with such re-letting. The balance, if any, shall be
applied by Landlord, from time to time, on account of the payments due or
payable by Tenant hereunder with the right reserved to Landlord to bring such
action or proceedings for the recovery of any deficits remaining unpaid as
Landlord may deem favorable from time to time without obligation to await the
end of the term hereof for the final determination of Tenant's account. The
failure of Landlord to re-let the Premises or any part or parts thereof shall
not release or affect Tenant's liability for damages. Landlord may make such
alterations, repairs, replacements and/or decorations in the Premises as
Landlord, in Landlord's sole judgment, considers advisable and necessary for the
purpose of re-letting the Premises; and the making of such alterations, repairs,
replacements, and/or decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. In any actions or proceedings
against
9
<PAGE> 13
Tenant for any of the above deficits or "Final Damages", Landlord shall be
entitled to recover reasonable attorneys fees incurred.
Any balance remaining, however, after full payment and liquidation
of Landlord's account as aforesaid, shall be paid to Tenant with the right
reserved to Landlord at any time to give notice in writing to Tenant of
Landlord's election to cancel and terminate this Lease and require Tenant to pay
"Final Damages" upon the giving of such notice and the simultaneous payment by
Tenant to Landlord of "Final Damages" this Lease shall and the obligations
thereunder on the part of either party to the other shall terminate.
"Final Damages" means the present worth of the amount by which
"Final Credits" exceeds "Final Debits." "Final Credits" means the annual rent
that would have been payable from the date on which the above election is
exercised to the date on which the term of this Lease would have expired if this
Lease had not been terminated. "Final Debits" means the fair rental value of the
Premises for the same period. Present worth shall be discounted at a rate equal
to the "Base Rate" on the date on which the election is exercised. The discount
shall be compounded monthly. The "Base Rate" means the Base Rate of SunTrust
Bank of Tennessee ("SunTrust") (or its successor) as publicly announced from
time to time. If SunTrust ceases to publicly announce its base rate, the Base
Rate shall be the average prime rate on short term business loans for the month
prior to the month in which the option is exercised as set forth in the Federal
Reserve Statistical Release published by the Board of Governors of the Federal
Reserve System.
Anything herein to the contrary notwithstanding, nothing herein shall
be construed to cause a waiver of any rights or defenses available to Tenant.
Landlord shall use reasonable efforts to mitigate its damages.
All payments due under this Lease shall be deemed to be due and payable
by Tenant to Landlord with interest thereon from the date that is ten (10) days
after when the particular amount became due to the date of payment thereof to
Landlord. The aforesaid interest shall be the lesser of highest legal rate then
in effect in the State of Tennessee or the "Prime Rate" quoted by the Wall
Street Journal plus two percent (2%) but not more than the maximum permitted by
applicable law.
The term "business day" as used herein shall exclude Saturdays,
Sundays, and any holiday observed by federally chartered banks in the United
States.
18. BANKRUPTCY.
(a) If there shall be filed against Tenant, in any court, pursuant to
any statute, either of the United States or of any state, a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or any portion of Tenant's property and Tenant fails
to secure a discharge thereof within ninety (90) days from the date of such
filing, or if Tenant shall voluntarily file any such petition nor make an
assignment for the benefit of creditors or petition for or enter into an
arrangement, then, in any of such events, this Lease, at the option of Landlord,
may be canceled and terminated without service of notice or resort to legal
process. In the event of a termination of this Lease pursuant to this Paragraph,
neither Tenant nor any person claiming through or under Tenant (whether by
virtue of any statute or any order of any court or otherwise) shall be entitled
to acquire or remain in possession of the Premises, as the case may be, and
Landlord shall have no further liability hereunder to Tenant or any other person
and Tenant or any other such person shall forthwith quit and surrender the
Premises. If this Lease shall be so canceled or terminated, Landlord, in
addition to the other rights and remedies of Landlord contained elsewhere in
this Lease, or under any statute or rule of law, may retain as liquidated
damages any Rent, security deposit and any other money received by Landlord from
Tenant or others on behalf of Tenant.
(b) In the event of a proceeding involving Tenant under the Bankruptcy
Code, 11 U.S.A 101 et seq., if this Lease is assumed by Tenant's trustee in
bankruptcy (after such trustee has cured all existing defaults, compensated
Landlord for any loss resulting therefrom and provided adequate assurance of
future performance), then this Lease may not be assigned by the trustee to a
third party, unless such party (a) executes and delivers to Landlord an
agreement in recordable form whereby such party assumes and agrees with Landlord
to discharge all obligations of Tenant under this Lease, including, without
limitation, the provisions of Paragraph 7 relating to the permitted use of the
Premises and the manner of operation thereof; (b) has a net worth and operating
experience at least comparable to that possessed by Tenant named herein as of
the execution of this Lease; and (c) grants Landlord, to secure the performance
of such party's obligations under this Lease, a security interest in such
party's merchandise, inventory, personal property, fixtures, furnishings, and
accounts receivable (and the proceeds of all of the foregoing) with respect to
its operations in the Premises, and in connection therewith, such party shall
execute such security agreements, financing statements and other documents (the
forms of which are to be designated by Landlord) as are necessary to perfect
such lien.
19. TENANT'S REMEDIES.
In the event Landlord shall fail to perform any of its obligations
hereunder, including without limitation, general building appearance,
maintenance and structural repairs, Tenant shall be entitled to perform such
repairs and maintenance as is reasonably necessary and appropriate in order to
cause compliance with Landlord's obligations provided Tenant has first given
Landlord thirty (30) days' written notice or in the event of emergency repairs
or maintenance, such written notice as is reasonable or available
10
<PAGE> 14
under the circumstances, but not less than twenty-four (24) hours. Landlord
agrees to reimburse Tenant for the cost and expenses incurred by Tenant in
effecting such repairs or maintenance within ten (10) days of the time that
Tenant submits a written claim for reimbursement to Landlord. Upon Landlord's
failure to so reimburse Tenant within said time period, such reimbursement shall
accrue interest from the date thereof at a rate per annum equal to the maximum
rate permitted in the State of Tennessee. The foregoing remedies of Tenant shall
be in addition to all other remedies which Tenant may have.
20. HOLDING OVER.
In the event Tenant shall fail to surrender possession of the Premises
upon the expiration or sooner termination of this Lease, Tenant shall, at the
Landlord's sole option, be deemed to be occupying the Premises as a tenant from
month to month and shall pay to Landlord, as an occupancy charge, an amount
equal to the sum of 150% of the Base Rent and Tenant's Proportionate Share of
Operating Expenses, paid during the last month prior to the expiration or
earlier termination of this Lease; provided, however, in such event Tenant shall
not be released from any further direct costs, damages or liabilities suffered
by Landlord and occasioned by Tenant's holding over, and Tenant agrees to
indemnify and hold Landlord harmless therefor.
21. ENTIRE AGREEMENT.
This Lease shall constitute the entire agreement of the parties hereto;
all prior agreements between the parties, whether written or oral, are merged
herein and shall be of no force and effect. This Lease cannot be changed,
modified, or discharged orally, but only by an agreement in writing, signed by
the party against whom enforcement of the change, modification, or discharge is
sought.
22. NOTICES.
Wherever in this Lease it shall be required or permitted that notice or
demand be given or secured by either party to this Lease to or on the other
party, such notice or demand shall be deemed to have been duly given or served
if in writing and either personally served, sent by private carrier such as
"Federal Express" or forwarded by Registered or Certified Mail, return receipt
requested, postage prepaid, and addressed as set forth in the Lease Summary.
Each such personally served or private carrier delivered notice shall
be deemed to have been given to or served upon the party to which addressed on
the date the same is received. Each such mailed notice shall be deemed to have
been given to or served upon the party to which addressed on the date which is
three (3) business days after deposit in the United States mail or the next day
if sent by nationally recognized overnight courier. Either party hereto may
change its address to which said notice shall be delivered or mailed by giving
written notice of such change to the other party hereto, as herein provided.
Tenant agrees to use reasonable efforts to send to Landlord's Mortgagee
copies of all notices to Landlord provided Landlord shall have first given
Tenant the name and address of such mortgagee to receive the same.
23. SUCCESSORS.
The respective rights and obligations provided in this Lease shall bind
and shall inure to the benefit of the parties hereto, their legal
representatives, heirs, successors and assigns; provided, however, that no
rights shall inure to the benefit of any successor, subtenant or assignee of
Tenant unless Landlord's written consent for the transfer to such successor,
assignee or subtenant has first been obtained as provided in this Lease.
24. PARKING COMMON AREAS.
(a) During the Lease Term, Tenant shall have, without charge, the
non-exclusive right to use, in common with Landlord, other tenants of the
Building, and their respective guests and invitees, the automobile parking
areas, driveways, and footways located on the Land. Notwithstanding the terms
and provisions in the immediately preceding sentence, Tenant and Tenant's guests
and invitees shall not, at any given time, be entitled to use more than Parking
Ratio as set forth in the Lease Summary. Landlord shall maintain such Parking
Ratio during the term of this Lease. Landlord shall not grant any reserved
parking rights to any party.
(b) As used in this Lease, "Common Areas" shall mean the hallways,
entryways, stairs, elevators, driveways, parking areas, sidewalks, walkways,
loading areas, rest rooms, and all other non-leased areas and facilities in and
about the Building and the Land. Landlord grants Tenant, its employees,
invitees, licensees and visitors a non-exclusive license for the Term of this
Lease to use the Common Areas with others, subject to the terms and conditions
of this Lease.
11
<PAGE> 15
25. LANDLORD'S INSURANCE.
Landlord shall, at its sole cost and expense, procure and keep in full
force and effect throughout the term of this Lease, insurance covering the
Building in which the Premises are located. Said insurance shall be equal to the
full replacement cost of the Building, insuring the Building against loss by
fire or other casualty with standard causes of loss special form coverage. Said
insurance shall include "loss of rent" insurance for a period of six (6) months
and shall include the rent due from Tenant for said period under this Lease and
of all other Tenants in the Building. Said insurance shall be purchased from an
insurance company or companies licensed to do business in the State of Tennessee
and shall insure Landlord, Landlord's mortgagee, and the tenants of the
Building, including Tenant, as their interests may appear. Each such policy
shall provide for thirty (30) days' written notice to Tenant and Landlord's
mortgagee of any cancellation.
Landlord and Tenant shall each cause the respective insurance policies
procured by either of them covering the Building (as to Landlord) and the
Premises and their contents (as to Tenant) to be written in a manner so as to
provide the insuring company waives all right of recovery by way of subrogation
against Landlord or Tenant, as the case may be, in connection with any loss of,
or damage covered by, such policies. Landlord shall also have the right to
terminate this Lease if Landlord does not fully restore the Premises within one
hundred eighty (180) days following a fir or other casualty, or if the Premises
are rendered untenantable within last the twelve (12) months of the Term.
Landlord shall also maintain at all times during the Term, commercial general
liability insurance, including contractual liability, in respect of the Building
and all systems and facilities and the conduct or operation of business therein
and thereon, with Tenant as additional insured, with limits of not less than
Three Million Dollars ($3,000,000) combined single limit for bodily injury and
property damage liability in any one occurrence, and (ii) worker's compensation
insurance in statutory limits.
26. HAZARDOUS SUBSTANCES.
(a) The term "Hazardous Substances," as used in this Lease, shall
include, without limitation, flammables, explosives, radioactive materials,
asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause cancer or
reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic
substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
(b) Tenant shall not cause or permit to occur, any violation of any
federal, state, or local law, ordinance, or regulation now or hereafter enacted,
related to environmental conditions on, under, or about the Premises, or arising
from Tenant's use or occupancy of the Premises, including but not limited to,
soil and ground water conditions; or
(c) Tenant shall not use, generate, release, manufacture, refine,
produce, process, store, or dispose of any Hazardous Substance on, under, or
about the Premises, or the transportation to or from the Premises of any
Hazardous Substance except for normal office supplies and except as specifically
disclosed in this Lease.
(d) Tenant shall, at Tenant's own expense, comply with all laws
regulating the use, generation, storage, transportation, or disposal of
Hazardous Substances ("Laws").
(e) Tenant shall, at Tenant's own expense, make all submissions to,
provide all information required by, and comply with all requirements of all
governmental authorities (the "Authorities") under the laws.
(f) Should any Authority or any third party demand that a cleanup plan
be prepared and that a cleanup be undertaken because of any deposit, spill,
discharge, or other releases of Hazardous Substances that occurs during the term
of this Lease, at or from the Premises, and which arises at any time from
Tenant's use or occupancy of the Premises, then Tenant shall, at Tenant's own
expense, prepare and submit the required plans and all related bonds and other
financial assurances; and Tenant shall carry out all such cleanup plans.
(g) Tenant shall promptly provide all information regarding the use,
generation, storage, transportation, or disposal of Hazardous Substances that is
requested by Landlord. If Tenant fails to fulfill any duty imposed under this
Paragraph (d) within a reasonable time, Landlord may do so; and in such case,
Tenant shall cooperate with Landlord in order to prepare all documents Landlord
deems necessary or appropriate to determine the applicability of the Laws to the
Premises and Tenant's use thereof, and for compliance therewith, and Tenant
shall execute all documents promptly upon Landlord's request. No such action by
Landlord and no attempt made by Landlord to mitigate damages under any Law shall
constitute a waiver of any of Tenant's obligations under this Paragraph (g).
(h) Tenant shall indemnify, defend, and hold harmless Landlord, the
manager of the property, and their respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees from all fines,
suits, procedures, claims, and actions of every kind, and all costs associated
therewith (including attorney's and consultants' fees) arising out of or in any
way connected with any deposit, spill, discharge, or other release of Hazardous
Substances that occurs during the term of this Lease, at or from the Premises,
and which arises at any time from Tenant's use or occupancy of the Premises, or
from Tenant's failure to provide all information, make all submissions, and take
all steps required by all Authorities under the Laws and all other environmental
laws.
12
<PAGE> 16
(i) Landlord represents there is no asbestos in or about the Premises
or the structural common areas of the Property. Anything in this Lease to the
contrary notwithstanding, unless the same shall arise for reason of the acts or
omissions of Tenant, Tenant shall not be responsible for and shall bear no costs
of sampling and cleanup required of any hazardous material relating to any
portion of the Property and Landlord agrees to indemnify and hold Tenant
harmless therefrom.
(j) The obligations and liabilities under this Paragraph 26 shall
survive the expiration of this Lease.
27. NEGATIVE COVENANTS OF TENANT.
Tenant agrees that it will not do or suffer to be done, any act, matter
or thing actually known to Tenant as objectionable to the fire insurance
companies whereby the fire insurance or any other insurance now in force or
hereafter to be placed on the Premises or any part thereof, or on the Building
of which the Premises may be a part, shall become void or suspended, or whereby
the same shall be rated as a more hazardous risk than at the date when Tenant
received possession hereunder, Tenant agrees to pay to Landlord as Additional
Rent, payable upon demand, any and all increase or increases in premiums on
insurance carried by on the Premises, or any part thereof, or on the Building,
caused in any way by the Tenant's use of the Premises for uses other than
general office uses. Tenant also agrees that it will not place upon or load any
floor of the Building exceeding the load for which the Building was designed
unless it first obtains the prior written consent of the Landlord. Such consent
may be conditioned upon the payment by the Tenant all sums which may be
necessary for any excess of consumption of water and/or electricity as may be
occasioned by the operation of said equipment or machinery. Tenant shall not
install any other equipment of any kind or nature whatsoever which will or may
necessitate any changes, replacements, or additions to or require the use of the
water system, plumbing system, heating system, air conditioning system or the
electrical system of the Premises without the prior written consent of the
Landlord.
28. EMERGENCY REPAIRS.
Landlord reserves the right to stop services on the heating, air
conditioning, elevator, plumbing and electrical systems, when in Landlord's
reasonable judgment, the same is deemed necessary by reason of accident,
emergency or for repairs, alterations, replacements or improvements thereto
provided that except in case of emergency, Landlord will notify Tenant in
advance, if possible, of any such stoppage and, if ascertainable, its estimated
duration, and will proceed with the work necessary to resume such service as
promptly as possible and in a manner and at times, including after business
hours, so as not to unduly interfere with or impair the Tenant's use and
enjoyment of the Premises.
If, for any reason, there is a failure to furnish the facilities,
utilities or services specified in this Lease or a condition exists which
interferes substantially with or prevents Tenant's normal use of the Premises or
any part thereof and Landlord does not immediately commence action restore same
or if so commenced, does not continue such action with reasonable diligence
until same are restored, then, in any such event, and upon the giving of five
(5) days' written notice to Landlord, Tenant shall have the option to furnish
such facilities, utilities, or services for its own account as may reasonably,
under the circumstances, be obtained by Tenant, and Tenant may deduct the cost
thereof from the rent due hereunder. If such interruption of service shall
continue for five (5) consecutive days, the Rent and Additional Rent shall
abate, based upon the portion or portions of the Premises affected by such
interruption of service and the degree of adverse effect of the interruption
upon the normal conduct of Tenant's business at the Premises, until such
interruption is remedied. If any such interruption of service shall continue for
more than thirty (30) consecutive days, Tenant may, by written notice to
Landlord given at any time prior to the resumption of service to a reasonable
level, terminate this Lease, and, upon the giving of such notice, this Lease
shall terminate and expire on the date set forth in such notice, which date
shall not be more than ninety (90) days after the date of such notice.
Except in the case of an emergency, Landlord will give Tenant at least
four (4) days prior notice if Landlord intends to interrupt any services
required to be furnished by Landlord.
The foregoing interpretation of or failure to provide services shall
not apply to failure of a provider of utilities to provide the same to the
Building unless it results from some action or inaction of Landlord.
29. ACCESS TO PREMISES.
Landlord, its employees and agents shall have the right to enter the
Premises at all reasonable times (upon prior notice except in emergency) for the
purpose of examining or inspecting the same, showing the same to prospective
purchasers, mortgagees or tenants, and making such alterations, repairs,
improvements or additions to the Premises or to the Building as Landlord may
deem necessary or desirable. If representatives of Tenant shall not be present
to open and permit entry into the Premises at any time when such entry by
Landlord is necessary or permitted hereunder, Landlord, its employees and agents
may enter by means of a master key (or forcibly in the event of an emergency)
without liability to Tenant and without such entry constituting an eviction of
Tenant or termination of this Lease. In the exercise of Landlord's rights
hereunder, Landlord shall use reasonable efforts not to disrupt the operation of
Tenant's business, and shall be liable for any damage incurred in connection
with any such entry by Landlord.
13
<PAGE> 17
30. ESTOPPEL CERTIFICATES.
(a) Tenant shall, at any time and from time to time, within thirty (30)
days following written request from Landlord, execute, acknowledge and deliver
to Landlord, a written statement certifying that this Lease is in full force and
effect and unmodified (or, if modified, stating the nature of such
modification), confirming the Commencement Date and expiration date of the Term,
certifying the date to which the Rent reserved hereunder has been paid, and
certifying that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed.
Any such statement may be relied upon by a prospective purchaser or mortgagee of
all or any part of the Building or the Land on which the Building is located.
(b) Landlord shall, at any time and from time to time, within thirty
(30) days following written request from Tenant, execute, acknowledge and
deliver to Tenant a written statement certifying that this Lease is in full
force and effect and unmodified (or, if modified, stating the nature of such
modification), confirming the Commencement Date and expiration date of the Term,
certifying the date to which the Rent reserved hereunder has been paid, and
certifying that there are not, to Landlord's knowledge, any uncured defaults on
the part of Tenant hereunder, or specifying such defaults if any are claimed.
Any such statement may be relied upon by any prospective purchaser of a material
interest in the Tenant or any institutional creditor of Tenant.
31. EXONERATION.
It is covenanted and agreed that no personal liability or
responsibility is assumed by nor shall at any time be asserted or enforceable
against Landlord or any partner, Affiliate of Landlord, parent corporation, or
any officer, director or shareholder thereof, or the successors or assigns of
the foregoing, on account of any covenant, undertaking or agreement in this
Lease contained, all such personal liability and responsibility, if any, being
expressly waived and released, it being understood that Tenant shall look solely
to the interest of the Landlord in the Building for satisfaction of any proven
damage of Tenant in the event of a breach by Landlord hereunder.
32. INTENTIONALLY OMITTED.
33. BROKERS.
Landlord and Tenant warrant to each other that they have dealt and
negotiated solely and only with the Broker (as set forth in the Lease Summary)
for this Lease and with no other broker, firm, company or person.
Tenant and Landlord (for good and valuable consideration) shall
indemnify and hold the other party harmless from and against any and all claims,
suits, proceedings, damages, obligations, liabilities, counsel fees, costs,
losses, expenses, orders and judgments imposed upon, incurred by or asserted
against the other party by reason of the falsity or error of the aforesaid
warranty. The provisions of this Paragraph shall survive the termination of this
Lease.
34. SURRENDER OF PREMISES.
At termination of this Lease by lapse of time or otherwise, Tenant
shall surrender the Premises to Landlord, together with all alterations,
additions, and improvements thereto, in broom clean condition and in good order
and repair except for ordinary wear and tear, damage by fire or other casualty,
and damage for which Tenant is not obligated to make repairs under this Lease,
failing this, Landlord may restore Premises to such condition and Tenant shall
pay the cost thereof. Upon such termination, all installations, alterations,
additions, hardware and improvements, including partitions which may have been
installed by either Landlord or Tenant upon Premises, shall remain upon Premises
and shall be Landlord's property unless otherwise provided for in accordance
with the terms hereof, all without compensation, allowance, or credit, except
that Tenant's moveable trade fixtures, office equipment and furniture shall
remain Tenant's property and Tenant shall have the right prior to such
termination to remove the same. Tenant shall surrender Premises to Landlord at
the end of the term hereof, without notice of any kind, and Tenant waives all
right to any such notice as may be provided under any laws now or hereafter in
effect. The provisions of this Paragraph shall survive the termination of this
Lease.
35. EXHIBITS.
Attached to this Lease, incorporated herein, and made a part hereof,
are Exhibits "A" to "J", inclusive.
36. ARBITRATION. INITIALS:
PGE
-------
RB
-------
(a) Except for the Excluded Issues (as defined herein), any
controversy, dispute or claim arising out of this Lease or the breach or alleged
breach of this Lease shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association currently
in effect (unless the
14
<PAGE> 18
parties mutually agree otherwise). The award rendered by the arbitrator or
arbitrators shall be final and any judgment upon the award rendered by the
arbitrator or arbitrators shall be entered in a state court in Williamson
County, Tennessee. The party hereunder demanding arbitration of any controversy,
dispute or claim arising out of this Lease or any breach or alleged breach of
this Lease shall file a written notice of such demand with the other party and
with the American Arbitration Association. Such written notice shall be given
not later than sixty (60) days after the controversy, dispute or claim arises or
the breach or alleged breach of this Lease occurs. Any arbitration under or
related to this Lease may include any other party that is or may be involved in
the controversy, dispute, claim or breach or alleged breach that is the subject
matter of the arbitration proceeding. Provided, however, and notwithstanding the
foregoing to the contrary, the following matters and issues (the "Excluded
Issues") shall be excluded from the mandatory arbitration provisions of this
Paragraph 36:
(1) Unless Tenant is disputing the existence of a Tenant default,
Landlord's exercise of its rights and remedies provided for under this Lease
solely to gain possession of the Premises or solely to terminate Tenant's right
of possession to the Premises, which disputes shall be resolved in state court
in Williamson County, Tennessee, subject to appeal pursuant to applicable law;
and
(2) Disputes regarding whether arbitration hereunder of a
particular controversy, dispute or claim arising out of this Lease or the breach
or alleged breach of this Lease is barred by the applicable statute of
limitations specified in Tennessee law, which disputes relating to whether the
statute of limitations is a bar to a particular controversy, dispute or claim
shall be resolved in state court in Williamson County, Tennessee, subject to
appeal pursuant to applicable law.
(b) Except with regard to the Excluded Issues (which shall be resolved
as provided below), Landlord and Tenant hereby irrevocably waive any and all
rights they may have to resolve any controversy, dispute or claim arising out of
this Lease or the breach or alleged breach of this Lease in a manner that is
inconsistent with the provisions of this Paragraph 36.
(c) Neither the parties to this Lease nor the arbitrator or arbitrators
may make any public disclosure of (i) the existence of any controversy, dispute
or claim arising out of this Lease or the breach or alleged breach of this
lease, (ii) the existence of an arbitration proceeding under this Lease or (iii)
the results of any arbitration proceeding under this Lease, unless Landlord and
Tenant both consent in writing to such public disclosure. Provided, however,
this prohibition shall not be deemed or construed to prevent or impede the entry
of any judgment upon an award rendered by the arbitrator or arbitrators in a
state court in Williamson County, Tennessee, as contemplated above.
37. INTENTIONALLY OMITTED.
38. AUTHORITY.
If Tenant is a partnership or corporation, Tenant warrants that the
individual executing this Lease on behalf of said partnership or corporation is
duly authorized to execute and deliver this Lease on behalf of said partnership
or corporation in accordance with the duly adopted resolution of the partners of
the partnership or Board of Directors of said corporation or partnership in
accordance with the bylaws of said corporation, (or under the pertinent
partnership agreements) and that this Lease is binding upon said corporation or
partnership in accordance with its terms.
39. COMPLIANCE WITH LAWS AND ORDINANCES.
Tenant agrees that it will, at its sole cost and expense, promptly
fulfill and comply with all laws, ordinances, regulations and requirements of
the City, County, State and Federal Governments and any and all departments
thereof having jurisdiction over the Building and of the National Board of Fire
Underwriters or any other similar body now or hereafter constituted, affecting
the Tenant's occupancy of the Premises or the business conducted therein. The
foregoing obligation of Tenant shall only apply to the extent that the same
shall affect or be applicable to (i) Tenant's manner of use of the Premises (as
opposed to its mere use thereof for ordinary office purposes), (ii) alterations
and improvements made by Tenant of (iii) a breach by Tenant of its obligations
under this Lease. Tenant may, at its expense (and, if necessary, in the name of
but without expense to, Landlord) contest, by appropriate proceedings diligently
prosecuted, the validity, or applicability to the Premises, of any matter if may
be required to comply with pursuant to this paragraph, and may postpone its
compliance therewith until such contest shall be decided; provided however, that
postponement of such compliance shall not materially adversely affect the
occupancy of the Building by its other tenants.
40. APPLICABLE LAW AND CONSTRUCTION.
The laws of the State of Tennessee shall govern the validity,
performance and enforcement of this Lease. The invalidity or unenforceability of
any provision of this Lease shall not affect or impair any other provision. The
submission of this document to Tenant for examination does not constitute an
offer to lease, or a reservation of or option to lease, and becomes effective
only upon execution and delivery thereof by Landlord and Tenant. All
negotiations, considerations, representations and understandings between the
parties are incorporated in the Lease. Any index preceding this Lease and the
headings of the paragraphs contained herein are for convenience only and do not
define, limit or construe the contents of such articles
15
<PAGE> 19
or paragraphs. Whenever herein the singular number is used, the same shall
include the plural, and the neuter gender shall include the masculine and
feminine genders.
IN WITNESS WHEREOF, the parties have executed and delivered this Lease
as of the day and year first above written.
Signed in the Presence of: LANDLORD:
Attest/Witness Landlord: CRESCENT RESOURCES, INC.
/s/ Yvonne Craig
- ------------------------------- By: /s/ Patrick G. Emery
--------------------------------
Name: Patrick G. Emery
------------------------------
Officer: Regional Vice President
---------------------------
Signed in the Presence of: TENANT:
Attest/Witness Tenant: BLUESTAR COMMUNICATIONS, INC.
/s/ Andrew M. Morin
- ------------------------------- By: /s/ R. L. Burtner
--------------------------------
Name: R. L. Burtner
------------------------------
Officer: Chief Financial Officer
---------------------------
16
<PAGE> 20
EXHIBIT A
LANDLORD'S LAND
Land in Williamson County, Tennessee, being Lot 657 on the Plat of Cool
Springs East Subdivision, Section 17, of record in Plat Book 26, page 141,
Register's Office for Williamson County, Tennessee.
17
<PAGE> 21
EXHIBIT B
FLOOR PLAN
18
<PAGE> 22
EXHIBIT B
FLOOR PLAN
19
<PAGE> 23
EXHIBIT C
FIVE CORPORATE CENTRE
WORKLETTER
LANDLORD: CRESCENT RESOURCES, INC.
TENANT: BLUESTAR COMMUNICATIONS, INC.
BUILDING: FIVE CORPORATE CENTRE
RECITALS
A. This workletter is attached to and forms a part of the certain lease
dated December 31, 1999, (the "Lease"), pursuant to which Landlord has leased to
Tenant certain space (the "Premises") in the Building.
B. The Lease provides for Landlord to make improvements to the Premises
(the "Tenant Improvements"), and Tenant desires to have Landlord make them,
prior to occupancy, upon the terms and conditions contained in this workletter.
1. Definitions. In this workletter, some defined terms are used. They
are (in addition to other defined terms):
(a) Tenant Improvement Allowance: As set forth in Lease Summary and
is to be applied by Landlord to the cost of Tenant Improvements.
(b) Tenant Plans: a drawing of the Premises depicting the lay-out of
all offices, partitions, door locations, types of electrical and data
and telephone outlets, and equipment, complete in form and content and
containing sufficient information and detail to allow for competitive
bidding or negotiated pricing by contractors selected and engaged by
Landlord and which must include the following (references to Tenant
Plans shall also include the Construction Plans for the NOC):
(i) Architectural Wall Plan
(a) Include all general construction notes
(ii) Reflected Ceiling Plan
(iii) Electrical, Telephone and Data Plan
(iv) Finishes Plan
(a) Include door schedule
(v) Details Plan
(a) Include millwork details
(b) Include other specialty items
(c) Estimated construction costs: a preliminary estimate of the
costs of the Tenant Improvements that are depicted on the Tenant
Plans, including all architectural, engineering, contractor, and any
other costs as can be determined from the Tenant Plans.
(d) Construction schedule: a schedule depicting the relative
time frames for various activities related to the construction of the
Tenant Improvements in the Premises.
(e) Tenant Cost proposal: a final estimate of costs of the Tenant
Improvements that are depicted on the Tenant Plans, including all
space planning, architectural, engineering, contractor, and any other
costs, and clearly indicating the cost, if any, that is to be paid by
Tenant pursuant to paragraph 2 (e) of the Lease.
(f) Maximum approved cost: the sum of the Tenant Improvement
Allowance and any additional amount that Tenant has agreed to pay for
the Tenant Improvements.
(g) Cost of the Tenant Improvements: the cost includes, but is
not limited to, the following:
(1) All architectural and engineering fees and expenses,
including but not limited to cost of preparation of Tenant Plans,
working drawings, cost estimates, etc.
(2) All permits and taxes.
20
<PAGE> 24
(h) Change order: any change, modification, or addition to the
final Tenant Plans or working drawings after Tenant has approved the
same.
(i) Building Shell Improvements: component elements utilized
in the design and construction of the Tenant Improvements that have
been pre-selected by the Landlord to ensure uniformity of quality,
function, and appearance throughout the Building as set forth on
Schedule 1 attached hereto, the cost of which shall be in addition to
the Tenant Improvement Allowance and shall be borne by Landlord.
2. Project Design and Construction. All work will be performed by
designers and contractors selected and engaged by Landlord.
3. Cost Responsibilities.
(a) Landlord: Landlord will pay up to the amount of the Tenant
Improvement Allowance for the cost of the Tenant Improvements.
(b) Tenant: Tenant will pay (subject to Section 2(e)(1) of the
Lease) for Excess Costs which may include but are not limited to:
(1) The amount by which the maximum Approved Cost exceeds
the Tenant Improvements Allowance.
(2) Tenant-initiated change orders, modifications, or
additions to the Tenant Improvements after the Tenant Plans are
final to the extent not offset by change by change and release
from other cost savings from other change orders.
(3) All costs in excess of the Tenant Improvement Allowance
that are not included in (1) or (2).
4. Landlord's Approval. Landlord, in its sole discretion, may withhold
its approval of any final Tenant Plans, working drawings, or change order that:
(a) Exceeds or adversely affects the structural integrity of the
building, or any part of the heating, ventilating, air conditioning,
plumbing, mechanical, electrical, communication, or other systems of
the building;
(b) Is not approved by the holder of any mortgage or deed of trust
encumbering the building at the time the work is proposed;
(c) Would not be approved by a prudent owner of property similar to
the building;
(d) Violates any agreement that affects the Building or binds
Landlord;
(e) Landlord reasonably believes will increase the cost of operation
or maintenance of any of the systems of the Building; provided
however, it is understood that Tenant may operate for business
twenty-four (24) hours a day, seven (7) days a week on the Premises
and that Tenant will have separately metered HVAC units for its space
or will pay for additional HVAC pursuant to Subsection (b) of
Exhibit H.
(f) Landlord reasonably believes will reduce the market value of the
Premises or the Building at the end of the term;
(g) Does not conform to applicable building code or is not approved
by any governmental, quasi-governmental, or utility authority with
jurisdiction over the Premises; or
(h) Does not conform to the Building Shell Improvements.
5. Schedule of Improvement Activities.
(a) In the event the Tenant Plans are not approved by the parties as
of the date hereof, Tenant shall on or before the date of the Plan
Submission Deadline and NOC Plan Submission Deadline set forth in the
Lease Summary submit to Landlord the construction plans ("Tenant
Plans") for the Tenant Improvements.
(b) Within ten (10) business days after receipt of Tenant's Plans
under (a), Landlord's architect will (if necessary) expeditiously
cause Tenant Plans to be prepared in form sufficient to comply with
local building codes to mechanical, electrical, plumbing and sprinkler
engineering requirements.
(c) After the Tenant's Plans have been completed as set forth in (6)
above. Landlord shall within two (2)business days request bids from
three (3) contractors and shall within seven (7)
21
<PAGE> 25
business days after bids are sent out select the Contractor with the
lowest bid to construct the Tenant Improvements. Landlord will
promptly cause to be prepared a preliminary estimate of the cost of
the Tenant Improvements as set forth in the Tenant Plans (the
"estimated construction costs"). If the estimated construction cost is
less than the Tenant Improvement Allowance, the estimated construction
cost will be deemed approved without a required response from Tenant.
If the estimated construction costs are more than the Tenant
Improvement Allowance, Landlord will so notify Tenant in writing and
Tenant will establish the Maximum Approved Cost by either:
(1) Agreeing in writing to pay the amount by which the
estimated construction cost exceeds the Tenant Improvement
Allowance or;
(2) Agreeing to have the final Tenant Plans revised by
Landlord's architect in order to assure that the estimated
construction cost is either:
(A) No more than the Tenant Improvement Allowance; or
(B) Exceeds the Tenant Improvement Allowance by an amount
that Tenant agrees to pay pursuant to (1).
Tenant will give immediate attention to establishing the Maximum Approved Cost
and shall respond to Landlord within three (3) business days. Upon Tenant's
timely fulfillment of its obligations in either clause (1) or clause (2), the
Maximum Approved Cost will be established.
(d) Upon establishment of the Maximum Approved Cost, Landlord
will cause to be prepared and delivered to Tenant the construction
schedule.
(e) Immediately upon approval of the Maximum Approved Cost, Landlord
will cause application to be made to the appropriate governmental
authorities for necessary approvals and building permits. Upon receipt
of the necessary approvals and permits, Landlord will begin
construction of the Tenant Improvements, and complete the same by the
Term Commencement Date.
6. Payment by Tenant. The amount payable by Tenant shall be paid as set
forth in Section 2 of the Lease. Tenant shall receive a credit against Base Rent
for any portion of the Tenant Improvement Allowance that is not used.
7. Change Orders. Tenant may authorize changes to the Tenant
Improvements during construction only by written instructions to Landlord's
representative on a form approved by Landlord. All such changes will be subject
to Landlord's prior written approval in accordance with paragraph 4. Prior to
commencing any change, Landlord will prepare and deliver to Tenant, for Tenant's
approval, a change order setting forth the total cost of such change, which will
include associated architectural, engineering, construction contractor's costs
and fees, completion schedule changes. If Tenant fails to approve such change
order within 5 business days after delivery by Landlord, Tenant will be deemed
to have withdrawn the proposed change and Landlord will not proceed to perform
the change. Upon Landlord's receipt of Tenant's approval, Landlord will proceed
with the change.
8. Completion and Commencement Date. Tenant's obligation for payment of
rent pursuant to the lease will commence on the Rent Commencement Date; however,
the Rent Commencement Date and the date for payment of rent may be delayed on a
day-by-day basis for each day the substantial completion of the Tenant
Improvements are delayed by Landlord or its contractors or agents. The payment
of rent will not be delayed by a delay of substantial completion due to Tenant.
The following are some examples of delays ("Tenant Delay Factors") that will not
affect the Rent Commencement Date and the date on which rent is to commence
under the lease:
(a) Late submissions of preliminary information;
(b) Change orders requested by Tenant that actually cause a delay;
(c) Delays in obtaining construction materials requested by
Tenant that do not conform to the Building Standard Specifications;
(d) Tenant's failure to approve timely any item requiring
Tenant's approval; and
(e) Delays by Tenant according to paragraph 5.
In the event that substantial completion of the Tenant Improvements is delayed
by Landlord, its contractors, or agents, the Commencement Date will be the date
of substantial completion of the Tenant Improvements, subject only to the
completion of Landlord's punch-list items (that is, those items which do not
materially interfere with Tenant's use and enjoyment of the Premises). Landlord
and Tenant will confirm the Commencement Date in accordance with applicable
terms of the lease.
22
<PAGE> 26
9. Condition of the Premises.
(a) Prior to the Commencement Date, Tenant will conduct a
walk-through inspection of the Premises with Landlord and prepare a
punch-list of items needing additional work by Landlord. Other than the
items specified in the punch-list and latent defect (as defined below),
by taking possession of the Premises, Tenant will be deemed to have
accepted the Premises in their condition on the date of delivery of
possession and to have acknowledged that Landlord has installed the
Tenant Improvements as required by this workletter and that there are
no items needing additional work or repair. The punch-list will not
include any damage to the Premises caused by Tenant's move-in or early
access, if permitted. Damage caused by Tenant will be repaired or
corrected by Landlord at Tenant's expense. Tenant acknowledges that
neither Landlord nor its agents or employees have made any
representations or warranties as to the suitability or fitness of the
Premises for the conduct of Tenant's business or for any other purpose,
nor has Landlord or its agents or employees agreed to undertake any
alterations or construct any Tenant Improvements to the Premises except
as expressly provided in their lease and this workletter. If Tenant
fails to submit a punch-list to Landlord within thirty (30) days after
the Term Commencement Date, it will be deemed that there are no items
needing additional work or repair. Landlord's contractor will complete
all punch-list items within 30 days or within such additional period as
is reasonably necessary after the walk-through inspection or as soon as
practicable after such walk-through.
(b) A "latent defect" is a defect in the condition of the Premises,
caused by Landlord's failure to construct the Tenant Improvements in a
good and workman-like manner and in accordance with the working
drawings, which would not ordinarily be observed during a walk-through
inspection. If Tenant notifies Landlord of a latent defect within one
year following the Commencement Date, then Landlord, at its expense,
will repair the latent defect as soon as practicable. Except as set
forth in this paragraph 9, Landlord will have no obligation or
liability to Tenant for latent defects. Landlord shall make available
to Tenant all contractor warranties with regard to Tenant
Improvements.
The terms hereof are approved.
LANDLORD:
CRESCENT RESOURCES, INC.
By: /s/ Patrick G. Emery
------------------------------------
Name: Patrick G. Emery
----------------------------------
Officer: Regional Vice President
-------------------------------
TENANT:
BLUESTAR COMMUNICATIONS, INC.
By: /s/ R. L. Burtner
------------------------------------
Name: R. L. Burtner
----------------------------------
Officer: Chief Finance Officer
------------------------------
23
<PAGE> 27
SCHEDULE I
1. Building Shell Improvements. Landlord, at Landlord's sole cost without
deduction from the Tenant Improvement Allowance, shall complete the
following as part of the Building Shell Improvements:
- 2' x 2' ceiling grid installed at 8' 10" above the finished floor
- 2' x 2' tegular acoustical ceiling tile (to be stacked on the floor in
the Premises)
- columns wrapped with drywall
- high efficiency 2' x 4', 3 lamp fixtures with 18 cell parabolic lenses
and lights at a ratio of one fixture per 75 square feet of Premises
Net Usable Area (to be stacked on the floor in the Premises)
- low pressure and medium pressure duct work installed on an open plan
- interior VAV boxes installed with thermostats
- perimeter VAV boxes installed to perimeter slot diffusers
- Building standard fire sprinkler system (in accordance with applicable
code requirements), with heads turned up installed on an open plan
- demising walls: Landlord shall pay for the cost of the demising walls
between the Premises and the Common Areas and the cost of the demising
walls between the Premises and other tenant space in the Building
- blinds for exterior windows
- men's and women's restrooms (one each for each floor to be used in
common)
- drinking fountains in common areas
- electric closet for typical Tenant floor
- electronically controlled card key access system to the Building
- slab with conduit to main panel for Tenant's back-up generator.
Connection and generator to be at Tenant's expense and may be paid
from Tenant Improvement Allowance.
24
<PAGE> 28
EXHIBIT D
RENT SCHEDULE
Project: Five Corporate Centre
Tenant: BlueStar Communications
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Net Rate Escalation Expense Stop* Gross Rate** Monthly Rent Annual Rent
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 13.35 0.00% $ 5.65 $ 19.00 $ 76,101.33 $ 913,216.00
- ------------------------------------------------------------------------------------------------------------------------
2 $ 13.75 3.00% $ 5.65 $ 19.40 $ 77,703.47 $ 932,441.60
- ------------------------------------------------------------------------------------------------------------------------
3 $ 14.16 3.00% $ 5.65 $ 19.81 $ 79,345.65 $ 952,147.84
- ------------------------------------------------------------------------------------------------------------------------
4 $ 14.59 3.00% $ 5.65 $ 20.24 $ 81,067.95 $ 972,815.36
- ------------------------------------------------------------------------------------------------------------------------
5 $ 15.03 3.00% $ 5.65 $ 20.68 $ 82,830.29 $ 993,963.52
- ------------------------------------------------------------------------------------------------------------------------
Extension Year $ 15.48 3.00% $ 5.65 $ 21.13 $ 84,632.69 $1,015,592.32
- ------------------------------------------------------------------------------------------------------------------------
1st Renewal Year $ 16.25 5.00% $ 5.65 $ 21.90 $ 87,716.80 $1,052,601.60
- ------------------------------------------------------------------------------------------------------------------------
2nd Renewal Year $ 16.74 3.00% $ 5.65 $ 22.39 $ 89,679.41 $1,076,152.96
- ------------------------------------------------------------------------------------------------------------------------
3rd Renewal Year $ 17.24 3.00% $ 5.65 $ 22.89 $ 91,682.08 $1,100,184.96
- ------------------------------------------------------------------------------------------------------------------------
4th Renewal Year $ 17.76 3.00% $ 5.65 $ 23.41 $ 93,764.85 $1,125,178.24
- ------------------------------------------------------------------------------------------------------------------------
5th Renewal Year $ 18.29 3.00% $ 5.65 $ 23.94 $ 95,887.68 $1,150,652.16
- ------------------------------------------------------------------------------------------------------------------------
6th Renewal Year $ 19.20 5.00% $ 5.65 $ 24.85 $ 99,532.53 $1,194,390.40
- ------------------------------------------------------------------------------------------------------------------------
7th Renewal Year $ 19.78 3.00% $ 5.65 $ 25.43 $101,855.63 $1,222,267.52
- ------------------------------------------------------------------------------------------------------------------------
8th Renewal Year $ 20.37 3.00% $ 5.65 $ 26.02 $104,218.77 $1,250,625.28
- ------------------------------------------------------------------------------------------------------------------------
9th Renewal Year $ 20.98 3.00% $ 5.65 $ 26.63 $106,662.03 $1,279,944.32
- ------------------------------------------------------------------------------------------------------------------------
10th Renewal Year $ 21.61 3.00% $ 5.65 $ 27.23 $109,185.39 $1,310,224.64
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Initial Year Expense Stop Estimate
**Does not reflect increases in operating expenses
The increases in Base Rent as set forth above do not reflect Tenant's obligation
to pay Tenant's proportionate Share of the amount by which Operating Expenses
exceed the Operating Cost Expense stop all as described in Section 4 of the
Lease.
Year one commences on the Term Commencement Date. The original term is years one
through five and four months. Base Rent for the last four (4) months of the
original term after the end of year five shall be the same as for the Rent for
year 5.
The parties understand the Annual rent shall be recomputed after the Operating
Expenses for the Operating Expense Base Year (2000) have been established as
provided in Section 4 of the Lease. The actual Operating Expense stop shall then
be determined by dividing the Operating Expenses by the Building Rentable Area.
The resulting factor shall then be added to the Net Rate as escalated to
determine the Gross Annual Rent.
25
<PAGE> 29
EXHIBIT E
RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, halls, stairways, and similar areas
shall not be obstructed nor shall refuse, furniture, boxes or other items be
placed therein by an tenant or its officers, agents, servants, and employees, or
be used for any purpose other than ingress and egress to and from premises in
the Building, or for going from one part of the Building to another part of the
Building. Canvassing, soliciting and peddling in the Building are prohibited.
2. Plumbing, fixtures, and appliances shall be used only for the
purposes for which constructed, and no unsuitable material shall be placed
therein.
3. No signs, directories, posters, advertisements, or notices shall be
painted of affixed on or to any of the windows or doors, or in corridors or
other parts of the Building, except in such color, size, and style, and in such
places, as shall be first approved in writing by Landlord in its discretion.
However, the prohibition in the immediately preceding sentence shall not limit
or restrict any tenant's right to maintain within the premises occupied by such
tenant any signs, directories, posters, advertisements, or notices so long as
such items are not visible from the exterior of the premises occupied by such
tenant or from the Common Areas of the Building. Building standard suite
identification signs will be prepared by landlord at Landlord's expense. Any
change in the identification sign desired by Tenant shall be at Tenant's
expense. Landlord shall have the right to remove all unapproved signs without
notice to any tenant, at the expense of the responsible tenant.
4. No tenant shall do, or permit anything to be done, in or about the
Building, or bring or keep anything therein, that will in any way increase the
rate of fire or other insurance on the Building, or on property kept therein or
otherwise increase the possibility of fire or other casualty.
5. Landlord shall have the power to prescribe the weight and position
of heavy equipment or objects which may overstress any portion of the floor. All
damage done to the Building by the improper placing of such heavy items will be
repaired at the sole expense of the responsible tenant.
6. Each tenant shall notify the Building manager when safes or other
heavy equipment are to be taken in or out of the Building, and the moving shall
be done after written permission is obtained from Landlord on such conditions as
Landlord shall require.
7. All deliveries must be made via the service entrance and service
elevator, when provided, during normal working hours. Landlord's written
approval must be obtained for any delivery after normal working hours.
8. Each tenant shall cooperate with Landlord's employees in keeping
such tenant's premises neat and clean.
9. Each tenant shall not cause or permit any improper noises in the
building, allow any unpleasant odors to emanate from the Premises, or otherwise
interfere, injure or annoy in any way other tenants or persons having business
with them. However, Landlord acknowledges that, if permitted by the applicable
lease, a tenant may operate a food services facility within the premises of such
tenant for the sole use and benefit of the occupants of such premises and that
such food services facility may emit odors normally associated with the
operation of such on-site food services facilities.
10. No animals shall be brought into or kept in or about the Building.
11. When conditions are such that a tenant must dispose of crates,
boxes, etc. on the sidewalk, it will be the responsibility of such tenant to
dispose of same prior to 7:30 a.m. or after 5:30 p.m.
12. No machinery of any kind, other than ordinary office machines such
as typewriters, computers, fax machines, scanners, information processing
systems, copy machines, communications equipment and calculators, shall be
operated in any premises in the Building without the prior written consent of
Landlord, nor shall any tenant use or keep in the Building any inflammable or
explosive fluid or substance (including live Christmas trees and ornaments), or
any illuminating materials. No space heaters or fans shall be operated in the
Building. Landlord agrees Tenant may install separate and maintain the equipment
necessary to operate its business on the Premises.
13. No motorcycles or similar motorized vehicles will be allowed in the
Building.
14. No nails, hooks, or screws shall be driven into or inserted in any
part of the Building, except for hanging decorations or as otherwise approved by
Building maintenance personnel. Notwithstanding the foregoing, a tenant may
decorate the interior of such tenant's premises at such tenant's sole discretion
provided such decorations do not impact the structural integrity of the Building
and cannot be seen from the exterior of the Building or from any Common Areas of
the Building.
15. Landlord has the right to evacuate the Building in the event of an
emergency or catastrophe.
16. No food and/or beverages shall be distributed from any tenant's
office without the prior written approval of the Building manager. But a tenant
may prepare coffee and similar beverages and warm typical luncheon items for the
consumption of such tenant's employees and invitees. Furthermore, Landlord
acknowledges that, if permitted by the applicable lease, a tenant may operate a
food services facility within the premises of such tenant for the sole use and
benefit of the occupants of such premises.
17. No additional locks shall be placed upon any doors without the
prior written consent of Landlord. All necessary keys or access cards or codes
shall be furnished by Landlord, and the same shall be surrendered upon
termination of the applicable lease, and each tenant shall then give Landlord or
Landlord's agent an explanation of the combination of all locks on the doors or
vaults. Replacement key or access cards or codes (i.e., replacements for keys or
access cards or codes previously issued by Landlord) shall be obtained only from
Landlord, and Tenant shall pay to Landlord (as Additional Rent, with thirty (30)
days after Tenant receives an invoice therefor) the actual costs incurred by
Landlord in obtaining and issuing replacement keys or access cards or codes for
keys or access cards or codes previously issued.
18. Tenants will not locate furnishings or cabinets adjacent to
mechanical or electrical access panels or over air conditioning outlets so as to
prevent operating personnel from servicing such units as routine or emergency
access may require. Cost or moving such furnishings for Landlord's access will
be for the responsible tenant's account. The lighting and air conditioning
equipment of the Building will remain the exclusive charge of the Building
designated personnel.
19. Each tenant shall comply with reasonable parking rules and
regulations as may be posted and distributed by Landlord from time to time.
26
<PAGE> 30
20. No portion of the building shall be used for the purpose of lodging
rooms.
21. Prior written approval, which shall be at Landlord's sole
discretion, must be obtained for installation of window shades, blinds, drapes,
or any other window treatment of any kind whatsoever. Landlord will control all
internal lighting that may be visible from the exterior of the Building and
shall have the right to change any unapproved lighting, without notice to the
responsible tenant, at the responsible tenant's expense.
22. All Tenant alterations shall be done by Landlord or by licensed
contractors and/or workmen.
27
<PAGE> 31
EXHIBIT F
INTENTIONALLY DELETED
28
<PAGE> 32
EXHIBIT G
CLEANING AND JANITORIAL SERVICES
LANDLORD SHALL FURNISH CLEANING AND JANITORIAL SERVICES TO THE PREMISES
AS DESCRIBED BELOW:
DAILY (Monday - Friday):
- Sweep, dry mop or vacuum, as appropriate, all floor areas; remove
material such as gum and tar which has adhered to the floor.
- Empty and damp wipe all ash trays, waste baskets and containers,
remove all trash from the leased premises.
- Dust all cleared horizontal surfaces with treated dust cloth,
including furniture, files, telephones, equipment that can be reached
without a ladder.
- Spot wash to remove smudges, marks and fingerprints from such areas
that can be reached without a ladder.
- Clean water fountains, cafeteria tables and chairs.
- Damp mop all non-resilient floors such as terrazzo and ceramic tile.
- Clear freight and passenger elevator cabs and landing doors.
- Clean mirrors, soap dispensers, shelves, wash basins, exposed
plumbing, dispenser and disposal container exteriors, damp wipe all
ledges, toilet stalls and toilet doors.
- Clean toilets and urinals with detergent disinfectants.
- Furnish and refill all soap, toilet, sanitary napkin and towel
dispensers.
- Spot clean carpet stains.
- Wash glass in Building directory, entrance doors and frames.
- Remove all litter from the parking lot and grounds.
WEEKLY:
- Dust vertical blinds and louvers.
- Spot wash interior partition glass and door glass to remove smudge
marks.
- Sweep all stairs areas.
- Dust all baseboards.
- Vacuum or brush all fabric covered chairs.
MONTHLY:
- Scrub and recondition resilient floor areas.
- Wash all stairwell landings and treads.
- Wash all interior glass both sides.
QUARTERLY:
- High dust all horizontal and vertical surfaces not reached in nightly
cleaning.
- Vacuum all ceiling and wall air supply and exhaust diffusers and
grills.
- Wash and polish vertical terrazzo and marble surfaces.
- Bonnet carpeted areas.
SEMI-ANNUALLY:
- Vacuum drapes, cornices and wall hanging.
- Dust all storage areas and shelves and contents.
- Damp wash diffusers, grills, and other such items.
ANNUALLY (or earlier as needed):
- Strip and refinish all resilient floors.
- Wash all building exterior glass both sides.
- Clean light fixtures, reflectors, globes, diffusers and trim.
29
<PAGE> 33
- Wash walls in corridors, lounges, classrooms, demonstration areas,
cafeterias, break rooms, washrooms.
- Clean all vertical surfaces not attended to during nightly, weekly,
quarterly or semi-annually cleaning.
30
<PAGE> 34
EXHIBIT H
SERVICES TO BE FURNISHED BY LANDLORD
Landlord agrees to furnish Tenant the following services:
(a) Hot and cold water at those points of supply provided for general
use of other tenants in the Building.
(b) Except with regard to any HVAC system or unit that exclusively
serves the Premises (or any portion thereof), which shall be Tenant's, Landlord
shall furnish central heat and air conditioning sufficient for the comfortable
occupancy of the Premises. Provided, however, central heating and air
conditioning service at times other than for "Normal Business Hours" for the
Building (which are 7:00 a.m. to 7:00 p.m. on Mondays through Fridays and 8:00
a.m. to 1:00 p.m. on Saturdays, exclusive of normal business holidays), shall be
furnished only on the written request of Tenant delivered to Landlord on the
following schedule:
(1) For evenings Monday through Friday - prior to 3:00 p.m. on the
day when such service is required;
(2) For Saturday afternoon, Saturday evening and Sunday - prior to
3:00 p.m. on Friday; and
(3) For normal business holidays - prior to the times set forth
above for the last day prior to such holiday.
Tenant shall bear the entire cost (as Additional Rent) of such additional
heating and air conditioning used by Tenant at time other than Normal Business
Hours, and Tenant shall pay such costs within thirty (30) days following demand
by Landlord. The cost to be charged by Landlord to Tenant hereunder for heating
and air conditioning service used by Tenant during times other than Normal
Business hours shall be $35.00 per hour, subject to increase in such hourly rate
from time to time during the Lease Term to reimburse Landlord for increases in
the cost to Landlord of electricity consumed in providing the heating and air
conditioning service.
If heat-generating machines of equipment shall be used in the Premises
by Tenant which affect the temperature otherwise maintained by the Building HVAC
system, Landlord shall have the right (at Landlord's option) to install (or to
require Tenant to install) one or more HVAC systems or units that exclusively
serve the Premises (or the portion thereof where such heat-generating machines
or equipment are located). The cost of any such separate HVAC systems or units
that exclusively serve the Premises, including the cost of installation and the
cost of operation and maintenance thereof, shall be borne by Tenant.
(c) Electrical service to serve the Common Areas and the Premises,
subject to the terms of Paragraph 4(g) herein.
(d) Routine maintenance and electric lighting service for all Common
Areas of the Building in the manner and to the extent deemed by Landlord to be
standard.
(e) Janitorial service, in accordance with the schedule attached hereto
as Exhibit G, Mondays through Fridays, exclusive of normal business holidays;
provided, however, if Tenant's floor covering or other improvements require
special treatment, Tenant shall pay the additional cleaning cost attributable
thereto as Additional Rent upon presentation of a statement therefor by
Landlord.
(f) All Building standard fluorescent and incandescent light bulb
replacement in the Common Areas and all light bulb replacement in the Premises.
Provided, however, Tenant shall promptly pay to Landlord, as Additional Rent,
costs incurred by Landlord in replacing light bulbs, in the Premises (including
the cost of purchasing such light bulbs) if and to the extent such replacement
cost exceeds the replacement cost for Building standard light bulbs. As used
herein, "Building standard light bulbs" shall be deemed to refer to 2' x 4', 3
lamp F40/CW with energy saving ballasts.
(g) Tenant, its employees, and its invitees who have been registered
with Landlord shall have access to the Premises (including elevator service) by
a code or card access system seven (7) days a week, twenty-four (24) hours a
day. Tenant shall receive an allotment of codes or cards for all of its
employees and for its invitees who are registered with Landlord. Landlord shall
bear the cost of each such code or card initially issued, provided Tenant shall
pay to Landlord (as Additional Rent, within thirty (30) days after Tenant
receives an invoice therefor) the actual costs incurred by Landlord in obtaining
and issuing replacement codes or cards for codes or cards previously issued.
Landlord, however, shall have no liability to Tenant, its employees, agents,
invitees or licensees for losses due to theft or burglary or for damages done by
unauthorized persons on the Premises, and Landlord shall not be required to
insure against any such losses. Tenant shall cooperate fully with Landlord's
efforts to maintain security in the Building during times other than Normal
Business Hours and shall follow all regulations promulgated by Landlord with
respect thereto.
31
<PAGE> 35
EXHIBIT I
TENANT PLANS
32
<PAGE> 36
EXHIBIT J
ADDITIONAL TERMS AND CONDITIONS OF LEASE
1. The following shall be added to the Lease as Section 41:
41. ACCESS TO RISER CABLE. Landlord grants to Tenant the right to install,
repair, maintain and remove its telecommunications equipment (the "Equipment")
in the main aggregate phone closet in the Building, and to access and to use the
vertical and horizontal conduits, risers, and collocation space within the main
aggregate phone closet in the Building. Tenant shall maintain the Equipment as
it deems necessary in its sole discretion. In the event this Lease expires or is
earlier terminated as provided herein. Tenant promptly shall remove the
Equipment, unless Tenant is providing telecommunications services to other
tenants in the Building, in which case Tenant shall be permitted to maintain the
Equipment in the Building. Tenant may solicit other tenants of the Building on a
non-discriminatory basis so long as such solicitation is performed in a
professional manner. Landlord shall provide reasonable security to the main
aggregate phone closet and provide Tenant with access to the main aggregate
phone closet on an as needed basis. Tenant represents and warrants that the rise
cable used in connection with providing telecommunications services to tenants
will not preclude other telecommunications providers from accessing or providing
services to tenants in the Building. Tenant agrees to promptly repair any and
all damage resulting to the Building from tenant's installation or removal of
its equipment.
2. The following shall be added to the Lease as Section 42:
42. FIFTH FLOOR EXPANSION:
Tenant shall have the ongoing right of first opportunity to lease any space
on the Fourth and Fifth Floor of the Building subject to any rights of other
tenants of the Building in effect on the date of this Lease. The Base Rent shall
be the same Rent in effect under this Lease at the time such space is added to
this Lease. In the event Landlord receives a letter of intent by a third party
for all or any portion of the available space on the Fifth Floor. Tenant shall
have seven (7) business days thereafter to sign an amendment to this Lease. The
Amendment shall provide for a Tenant Improvement Allowance equal to $3.60 per
rentable square foot of the additional space multiplied by the number of years
(or fraction thereof) remaining in the Initial Term if the space is "shell"
(previously unconstructed) or $2.00 per rentable space foot if it contains
existing Tenant Improvements. The Tenant Improvements shall be constructed
basically in accordance with the same mechanism as set forth in the Work Letter.
3. The following shall be added as Section 43:
43. ALLOWANCE:
Within thirty (30) days after the Tem Commencement Date, Landlord shall pay
Tenant the sum of $1.00 per rentable square feet of space in the Premises as a
moving allowance (the "Additional Allowance"). Any "Excess Costs" as defined the
Lease shall first be deducted from the Additional Allowance.
4. The following shall be added as Section 44:
44. DIRECTORY:
Landlord shall provide and maintain, at its expense, a Building director
posted in the first (1st) floor lobby of the Building, listing only the names of
the tenants in the Building. Such directory shall be reasonably located for the
convenience of guests and invitees of tenants of the Building. Landlord shall
provide to Tenant, at no charge, its proportionate share of the listings on said
directory. Landlord shall also provide to Tenant all such additional initial and
replacement lists as Tenant shall reasonably require, at Landlord's standard
charge therefor.
5. The following shall be added as Section 45:
45. RULES AND REGULATIONS:
Landlord shall (i) not discriminate against Tenant in enforcing the rules and
regulations, (ii) not unreasonably withhold or delay its consent from Tenant for
any approval required under the rules and regulations, and (iii) exercise its
judgment in good faith in any instance providing for the exercise of its
judgment in the rules and regulations. Landlord shall use reasonable efforts to
secure compliance by all tenants and other occupants with the rules and
regulations.
33
<PAGE> 1
EXHIBIT 10.9
OFFICE LEASE
L & C TOWER
FOURTH AVENUE AND CHURCH STREET
NASHVILLE, TENNESSEE
LANDLORD: LC TOWER, L.L.C., A DELAWARE LIMITED
LIABILITY COMPANY
TENANT: BLUESTAR COMMUNICATIONS, A TENNESSEE CORPORATION
DATED FOR REFERENCE PURPOSES AS OF: APRIL 16, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 PREMISES AND TERM.......................................................................................1
ARTICLE 2 BASE RENT...............................................................................................1
ARTICLE 3 ADDITIONAL RENT.........................................................................................2
ARTICLE 4 COMMENCEMENT OF TERM....................................................................................3
ARTICLE 5 CONDITION OF PREMISES...................................................................................4
ARTICLE 6 USE AND RULES...........................................................................................5
ARTICLE 7 SERVICES AND UTILITIES..................................................................................5
ARTICLE 8 ALTERATIONS AND LIENS...................................................................................8
ARTICLE 9 REPAIRS.................................................................................................8
ARTICLE 10 CASUALTY DAMAGE........................................................................................9
ARTICLE 11 INSURANCE; SUBROGATION................................................................................10
ARTICLE 12 CONDEMNATION..........................................................................................11
ARTICLE 13 RETURN OF POSSESSION..................................................................................11
ARTICLE 14 HOLDING OVER..........................................................................................12
ARTICLE 15 NO WAIVER.............................................................................................12
ARTICLE 16 ATTORNEYS' FEES AND JURY TRIAL; VENUE.................................................................13
ARTICLE 17 PERSONAL PROPERTY TAXES, RENT TAXES AND OTHER TAXES...................................................13
ARTICLE 18 TENANT'S AUTHORITY....................................................................................13
ARTICLE 19 SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION....................................................14
ARTICLE 20 ESTOPPEL CERTIFICATE..................................................................................15
ARTICLE 21 ASSIGNMENT AND SUBLETTING.............................................................................15
ARTICLE 22 RIGHTS RESERVED BY LANDLORD...........................................................................17
ARTICLE 23 LANDLORD'S REMEDIES...................................................................................18
ARTICLE 24 LANDLORD'S RIGHT TO CURE..............................................................................21
ARTICLE 25 CAPTIONS, DEFINITIONS AND SEVERABILITY................................................................22
ARTICLE 26 CONVEYANCE BY LANDLORD AND LIABILITY..................................................................26
ARTICLE 27 WAIVER AND INDEMNIFICATION............................................................................26
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 28 SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS....................................................27
ARTICLE 29 COMMUNICATIONS AND COMPUTER LINES.....................................................................27
ARTICLE 30 HAZARDOUS MATERIALS...................................................................................28
ARTICLE 31 MISCELLANEOUS.........................................................................................30
ARTICLE 32 OFFER.................................................................................................31
ARTICLE 33 NOTICES...............................................................................................31
ARTICLE 34 REAL ESTATE BROKERS...................................................................................32
ARTICLE 35 SECURITY DEPOSIT......................................................................................32
ARTICLE 36 FINANCIAL STATEMENTS..................................................................................33
ARTICLE 37 LANDLORD'S LIEN.......................................................................................33
ARTICLE 38 ADA...................................................................................................33
ARTICLE 39 LANDLORD'S CONTRIBUTION FOR WORK; PROGRESS PAYMENTS...................................................34
ARTICLE 40 ENTIRE AGREEMENT......................................................................................34
ARTICLE 41 LANDLORD'S AUTHORITY..................................................................................34
ARTICLE 42 Parking...............................................................................................35
</TABLE>
RIDER ONE-RULES
EXHIBITS
EXHIBIT A THE PREMISES
EXHIBIT B JANITORIAL SPECIFICATIONS
EXHIBIT B-1 HVAC SPECIFICATIONS
ii
<PAGE> 4
OFFICE LEASE
THIS LEASE is made as of the 16th day of April, 1999, between LC TOWER,
L.L.C., a Delaware limited liability company ("Landlord"), and BlueStar
Communications, a Tennessee Corporation whose address is L&C Tower, 401 Church
Street, 24th Floor, Nashville, TN 37219 ("Tenant").
WITNESSETH:
ARTICLE 1
PREMISES AND TERM
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
that certain space ("Premises") described or shown on Exhibit A attached hereto,
on the 24th and 27th floor ("Tower Premises") and on the 4th and 5th floor in
the Annex Building ("Annex Premises") of the L & C Tower, 401 Church Street,
Nashville, Tennessee (the "Building"), subject to and conditioned upon the
provisions herein contained. The term ("Term") of this Lease shall commence on
the 1st day of May, 1999 ("Commencement Date"), and end on the 30th day of
April, 2000 for the Tower Premises and end on the 30th day of April, 2002 for
the Annex Premises ("Expiration Date"), unless sooner terminated as provided
herein. The Commencement Date shall be subject to adjustment as provided in
Article 4. Landlord and Tenant agree that, for purposes of this Lease, except as
otherwise provided herein, the rentable area of the Premises shall be deemed to
be 8,536 square feet in the Tower Premises and 4,711 square feet in the Annex
Premises for a combined total of 13,247 square feet of Premises, and the
rentable area of the Property shall be deemed to be 274,226 square feet,
irrespective of whether the same shall be more or less as a result of variations
resulting from actual constructions and completion of the Premises or any other
premises for occupancy.
ARTICLE 2
BASE RENT
Tenant shall pay Landlord an annual base rent (herein called "Base
Rent") for the Premises at the annual rates and amounts shown on the Base Rent
Schedule below, payable in equal monthly installments in advance on or before
the first day of each calendar month during the Term, except that Base Rent for
the first full calendar month for which Base Rent shall be due, shall be paid
when Tenant executes this Lease. If the Term commences on a day other than the
first day of a calendar month, or ends on a day other than the last day of a
calendar month, then the Base Rent for such month shall be prorated on the basis
of 1/30th of the monthly Base Rent for each day of such month.
BASE RENT SCHEDULE
<TABLE>
<CAPTION>
Annual Rate of Base Rent Per Annual Base Rent for the
Square Foot Premises (and monthly
Period Of Rentable Area installment)
------ ---------------- ------------
<S> <C> <C>
Commencement Date to and including the day
before the first anniversary of the $12.58 Annex Premises $ 178,768.38
Commencement Date: 05/01/1999 - 04/30/2000 $14.00 Tower Premises ($14,897.37)
First anniversary of the Commencement Date to $13.58 Annex Premises only $ 63,975.38
the Expiration Date: 05/01/2000 - 04/30/2002 ($5,331.28)
</TABLE>
1
<PAGE> 5
ARTICLE 3
ADDITIONAL RENT
(A) TAXES. During the Term, Tenant shall pay Landlord an amount equal
to Tenant's Prorata Share of Taxes in excess of the amount of Property Taxes
paid in the 1999 calendar year in the manner described below. The terms "Taxes"
and "Tenant's Prorata Share" shall have the meanings specified therefor in
Article 25.
(B) OPERATING EXPENSES. Tenant shall pay Landlord an amount equal to
Tenant's Prorata Share of Operating Expenses in excess of the amount of
Operating Expenses paid in 1999 calendar year in the manner described below. The
terms "Operating Expenses" and "Tenant's Prorata Share" shall have the meanings
specified therefor in Article 25. Tenant shall also pay for all submetered
electric service to the Annex Premises quarterly.
(C) MANNER OF PAYMENT. Taxes and Operating Expenses shall be paid in
the following manner:
(i) Landlord may reasonably estimate in advance the amounts Tenant
shall owe for Taxes and Operating Expenses in excess of Taxes and Operating
Expenses paid in the 1999 calendar year for any full or partial calendar year of
the Term. In such event, Tenant shall pay such estimated amounts, on a monthly
basis, on or before the first day of each calendar month, together with Tenant's
payment of Base Rent. Such estimate may be reasonably adjusted from time to time
by Landlord.
(ii) Within 120 days after the end of each calendar year, or as soon
thereafter as practicable, Landlord shall provide a statement (the "Statement")
to Tenant showing: (a) the amount of actual Taxes and Operating Expenses for
such calendar year, with a listing of amounts for major categories of Operating
Expenses, (b) any amount paid by Tenant towards Taxes and Operating Expenses
during such calendar year on an estimated basis, and (c) any revised estimate of
Tenant's obligations for Taxes and Operating Expenses for the current calendar
year in excess of Taxes and Operating Expenses paid in the 1999 calendar year.
(iii) If the Statement shows that Tenant's estimated payments were less
than Tenant's actual obligations for Taxes and Operating Expenses for such year,
Tenant shall pay the difference. If the Statement shows an increase in Tenant's
estimated payments for the current calendar year, Tenant shall pay the
difference between the new and former estimates, for the period from January 1
of the current calendar year through the month in which the Statement is sent.
Tenant shall make such payments within thirty (30) days after Landlord sends the
Statement. Tenant's obligations to make the foregoing payments shall survive the
expiration or earlier termination of this Lease.
(iv) If the Statement shows that Tenant's estimated payments exceeded
Tenant's actual obligations for Taxes and Operating Expenses, Tenant shall
receive a credit for the difference against payments of Rent next due. If the
Term shall have expired and no further Rent shall be due, Tenant shall receive a
refund of such difference, within thirty (30) days after Landlord sends the
Statement.
(v) Landlord reserves the right to reasonably change, from time to
time, the manner or timing of the foregoing payments. In lieu of providing one
Statement covering Taxes and Operating Expenses, Landlord may provide separate
statements, at the same or different times. No delay by Landlord in providing
the Statement (or separate statements) shall be deemed a default by Landlord or
a waiver of Landlord's right to require payment of Tenant's obligations for
actual or estimated Taxes or Operating Expenses.
(D) PRORATION. If the Term commences other than on January 1, or ends
other than on December 31, Tenant's obligations to pay estimated and actual
amounts towards Taxes and Operating Expenses for such first or final calendar
years shall be prorated to reflect the portion of such years included in the
Term. Such proration shall be made by multiplying the total estimated
2
<PAGE> 6
or actual (as the case may be) Taxes and Operating Expenses, for such calendar
years by a fraction, the numerator of which shall be the number of days of the
Term during such calendar year, and the denominator of which shall be 365. A
similar proration shall be made each time Tenant's Prorata Share changes during
any calendar year.
(E) LANDLORD'S RECORDS. Landlord shall maintain records respecting
Taxes and Operating Expenses and determine the same in accordance with sound
accounting and management practices, consistently applied. Although this Lease
contemplates the computation of Taxes and Operating Expenses on a cash basis,
Landlord shall make reasonable and appropriate accrual adjustments to ensure
that each calendar year includes substantially the same recurring items.
Landlord reserves the right to change to a full accrual system of accounting so
long as the same is consistently applied and Tenant's obligations are not
materially adversely affected. Tenant or its representative shall have the right
to examine such records upon reasonable prior notice specifying such records
Tenant desires to examine, during normal business hours at the place or places
where such records are normally kept by sending such notice no later than
forty-five (45) days following the furnishing of the Statement. Tenant may take
exception to matters included in Taxes or Operating Expenses, or Landlord's
computation of Tenant's Prorata Share of either, by sending notice specifying
such exception and the reasons therefor to Landlord no later than ninety (90)
days after Landlord makes such records available for examination. Such Statement
shall be considered final, except as to matters to which exception is taken
after examination of Landlord's records in the foregoing manner and within the
foregoing times. Tenant acknowledges that Landlord's ability to budget and incur
expenses depends on the finality of such Statement, and accordingly agrees that
time is of the essence of this Paragraph. If Tenant takes exception to any
matter contained in the Statement as provided herein, Landlord shall refer the
matter to an independent certified public accountant, whose certification as to
the proper amount shall be final and conclusive as between Landlord and Tenant.
Tenant shall promptly pay the cost of such certification, unless such
certification determines that Tenant was overbilled by more than four percent
(4%). Pending resolution of any such exceptions in the foregoing manner, Tenant
shall continue paying Tenant's Prorata Share of Taxes and Operating Expenses in
the amounts determined by Landlord, subject to adjustment after any such
exceptions are so resolved.
(F) RENT AND OTHER CHARGES. Base Rent, Taxes, Operating Expenses, and
any other amounts which Tenant is or becomes obligated to pay Landlord under
this Lease or other agreement entered in connection herewith, are sometimes
herein referred to collectively as "Rent," and all remedies applicable to the
non-payment of Rent shall be applicable thereto. Rent shall be paid at any
office maintained by Landlord or its agent at the Property or at such other
place as Landlord may designate.
(G) INDEPENDENT COVENANTS. The obligation of Tenant to pay Rent
hereunder and the obligation of Tenant to perform Tenant's other covenants and
duties hereunder constitute independent unconditional obligations to be
performed at all times provided for hereunder. Except as expressly provided in
this Lease, Tenant waives and relinquishes all rights which Tenant might have to
claim any nature of lien, or to withhold, abate or deduct from, or offset
against, Rent except as specifically provided herein.
ARTICLE 4
COMMENCEMENT OF TERM
The Commencement Date set forth in Article 1 shall be delayed and Rent
shall be abated to the extent that Landlord fails for any reason, including, but
not limited to, holding over by prior occupants, to deliver possession of the
Premises to Tenant on or before May 1, 1999 (the "Delivery Date") for Tenant to
occupy space. If Landlord fails to deliver possession of the Premises as
aforesaid on or before the date which is one hundred fifty (150) days from the
Delivery Date, as the Delivery Date is extended by delays caused by Force
Majeure (as hereinafter defined), then, as Tenant's sole and exclusive remedy,
Tenant shall have the right to terminate this Lease without further liability of
Landlord or Tenant, by written notice to Landlord given within the ten (10)-day
period immediately following such one hundred fifty (150)-day period, as such
one hundred fifty (150)-day period may be extended by delays caused by Force
Majeure, but, in any case, such notice of termination shall not be effective if
Landlord delivers possession of the Premises prior to the end of such ten
(10)-day period. Notwithstanding anything in the foregoing sentence to the
contrary, if Landlord is performing work in the Premises to make it ready for
Tenant to perform the Work and if substantial completion of such work by
Landlord is
3
<PAGE> 7
delayed, in whole or in part, by any act or omission by Tenant or any of
Tenant's contractors, agents, or employees ("Tenant Delay"), then delivery of
possession shall be deemed to have occurred on the date substantial completion
by Landlord would have occurred but for any such Tenant Delay. Any delay in the
Delivery Date shall not subject Landlord to liability for loss or damage
resulting therefrom, and Tenant's sole recourse with respect thereto shall be
the abatement of Rent and right to terminate this Lease as described above. Upon
any such termination, Landlord and Tenant shall be entirely relieved of their
obligations hereunder, and any Security Deposit and Rent payments shall be
returned to Tenant; provided, however, any of Tenant's indemnity obligations
pursuant to this Lease shall survive such termination. If the Delivery Date is
delayed, the Expiration Date shall not be similarly extended, unless Landlord
shall so elect (in which case, the parties shall confirm the same writing).
As used herein, "Force Majeure" shall mean fire or other casualty,
strikes, lock-outs or other labor troubles, shortages of equipment or materials,
governmental requirements, power shortages or outages, acts or omissions of
Tenant or other Persons, or other causes beyond Landlord's reasonable control.
In the event that, pursuant to the provisions of this Article 4, the
Commencement Date shall be a date other than the date originally fixed for the
Commencement Date in Article 1 of this Lease, Tenant agrees, upon demand of
Landlord, to execute, acknowledge, and deliver to Landlord a signed instrument,
in form satisfactory to Landlord, setting forth the Commencement Date.
ARTICLE 5
CONDITION OF PREMISES
Tenant's taking possession of the Premises or any portion thereof for
any purpose shall be conclusive evidence against Tenant that the Premises and
the Property, Systems and Equipment (as defined in Article 25) were then in good
order and satisfactory condition, and Tenant represents and warrants that Tenant
has had ample opportunity to inspect the Premises, and agrees to accept the same
"as is" except as specifically set forth in Article 39. No promises of Landlord
to alter, remodel, improve, repair, decorate or clean the Premises or any part
thereof, or the Building, or any part thereof, have been made, and no
representation, either express or implied, respecting the habitability,
suitability, quality, fitness for any particular purpose, or condition of the
Premises or the Building has been made to Tenant by or on behalf of Landlord,
except to the extent expressly set forth in this Lease.
ARTICLE 6
USE AND RULES
Tenant shall use the Premises for offices in the Tower Premises and the
operation of networking equipment and all equipment and appurtenances thereto
for the operation of a telecommunication operation in the Annex Premises and no
other purpose whatsoever, in compliance with all applicable Laws and without
disturbing or interfering with any other tenant or occupant of the Property.
Tenant shall not use the Premises in any manner so as to cause a cancellation of
Landlord's insurance policies, or an increase in the premiums thereunder. Tenant
shall comply with all rules set forth in Rider One attached hereto (the
"Rules"). Landlord shall have the right to reasonably amend such Rules and
supplement the same with other reasonable Rules relating to the Property, for
the promotion of safety, care, cleanliness or good order therein, and all such
amendments or new Rules shall be binding upon Tenant after five (5) days notice
thereof to Tenant provided same do not materially affect Tenant's rights under
the Lease and use of the Premises unless mandated by municipal, county, state,
federal or other government law, statute, code, and/or regulation. All Rules
shall be applied on a non-discriminatory basis, but nothing herein shall be
construed to give Tenant or any other Person (as defined in Article 25) any
claim, demand or cause of action against Landlord arising out of the violation
of such Rules by any other tenant, occupant, or visitor of the Property, or out
of the enforcement or waiver of the Rules by Landlord in any particular
instance.
4
<PAGE> 8
ARTICLE 7
SERVICES AND UTILITIES
(a) Landlord shall provide the following services and utilities (the
cost of which shall be included in Operating Expenses) as long as Tenant is not
in Default (as hereinafter defined) under any of the covenants of this Lease:
(i) In the Tower Premises only, heat and air-cooling for occupancy of
the Premises under normal business operations in accordance with the HVAC
Specifications attached hereto as Exhibit B-1 from the hours of 8:00 a.m. until
6:00 p.m. Monday through Friday and 8:00 a.m. until 1:00 p.m. Saturday, except
on Holidays (as defined in Article 25). Landlord shall not be responsible for
inadequate air-cooling or ventilation to the extent the same occurs because
Tenant uses any item of equipment consuming more than 500 watts at rated
capacity without providing adequate air-conditioning and ventilation therefor.
Provided Tenant has submitted HVAC equipment specifications to Landlord and
provided Landlord has approved same prior to its installation, Tenant shall have
the right to control Tenant-installed heat and air cooling for the Annex
Premises.
(ii) Domestic water for drinking, lavatory and toilet purposes at those
points of supply provided for nonexclusive general use of other tenants at the
Property. Tenant shall pay Landlord as additional rent at rates fixed by
Landlord for domestic water and hot water furnished for any other purpose.
(iii) Office cleaning, and trash removal service Monday through Friday
or Sunday through Thursday in and about the Premises in accordance with Exhibit
B attached hereto and made a part hereof. Tenant shall not provide or use any
other janitor or cleaning service. Landlord may impose reasonable charges for
any cleaning service performed by Landlord in the Premises above or beyond the
levels or quantities described in Exhibit B, and Tenant shall promptly pay such
charges as additional rent hereunder.
(iv) Operatorless passenger elevator service and freight elevator
service (subject to scheduling by Landlord) in common with Landlord and other
tenants and their contractors, agents and visitors.
(b) Landlord and Tenant agree that Tenant shall submeter its Annex
Premises at Tenant's cost, and all electric costs shall be paid for by the
Tenant as additional rent paid to the Landlord in an amount to be determined by
Landlord, based upon the actual cost thereof of electric current consumption
separately metered, plus an amount equal to fifteen percent (15%) of such cost
as an overhead and supervision fee.
Pertaining to the Tower Premises only, no electric current shall be
used except that furnished or approved by Landlord, nor shall electric cable or
wire be brought into the Leased Premises, except upon the written consent and
approval of the Landlord, such approval not to be unreasonably withheld. Tenant
shall use only office machines and equipment that operate on the Building's
standard electric circuits, but which in no event shall overload the Building's
standard electric circuits from which the Tenant obtains electric current.
Provided Tenant has submitted generator equipment specifications to
Landlord and provided Landlord has approved same, Tenant shall have the right to
install a generator for the Annex Premises. It is acknowledged that Tenant shall
have its own generator as an electrical power back-up source for the Annex
Premises and that the use of said back-up source in the event of a power failure
is permissible under this Lease without the prior approval of Landlord. Landlord
shall bear no responsibility for the maintenance and/or operation of Tenant's
generator. Tenant shall hold Landlord harmless from any damage or malfunction of
said generator, unless such damage or malfunction is from the gross negligence
or willful misconduct of Landlord, its employees or agents.
5
<PAGE> 9
(c) Telephone service shall not be furnished by Landlord. Landlord
shall permit Tenant to receive such service direct from any telephone company
serving the area at Tenant's cost, and shall permit Landlord's telephone
building riser cable, to the extent available, to be used for such purposes.
Tenant shall also have the right to install/drop its own riser cable. Landlord
shall require Tenant to contract directly for such access with a company which
is managing the use of the telephone cable riser in the Building. However,
Landlord acknowledges that the telephone company serving Tenant shall have
access to the Premises and Landlord's telephone building riser cable and chase
way to the extent necessary for the installation, maintenance and repair of
Tenant's telephone service, and Tenant acknowledges that it shall arrange with
Landlord for access to common area telephone closets; Landlord shall provide
Tenant with prompt access to common telephone closets upon request. Tenant shall
make all necessary arrangements with the telephone company for paying for the
telephone service furnished by it to Tenant, and Tenant shall pay for all
charges for telephone service and riser cable access. Neither Tenant nor
Tenant's telephone company nor their respective agents, employees, licensees,
invitees or contractors shall make any alterations, additions or repairs to
Landlord's telephone building riser cable, telephone wires, telephone junction
boxes or telephone wire conduits, without the prior written consent of Landlord.
Tenant shall be liable for any damage done to Landlord's telephone building
riser cable, telephone wires, telephone junction boxes or telephone wire
conduits as a result of Tenant or Tenant's telephone company's or their
respective agents, employees, licensees, invitees or contractors alteration,
addition, maintenance or repair of Tenant's telephone system and Landlord may,
at its option, repair such damage and Tenant shall upon demand by Landlord
reimburse Landlord for all costs of such repair and damages.
(d) As to the Tower Premises only, Landlord may, but shall have no
obligation to, provide such extra utilities or services as Tenant may from time
to time request, if the same are reasonable and feasible for Landlord to provide
and do not involve modifications or additions to the Property or existing
Systems and Equipment (as defined in Article 25), and if Landlord shall receive
Tenant's request within a reasonable period prior to the time such extra
utilities or services are required. Landlord may comply with written or oral
requests by any officer or employee of Tenant, unless Tenant shall notify
Landlord of, or Landlord shall request, the names of authorized individuals (up
to 3 for each floor on which the Premises are located) and procedures for
written requests Tenant shall, for such extra utilities or services, pay such
charges as Landlord shall from time to time reasonably establish. All charges
for such extra utilities or services shall be due at the same time as the
installment of Base Rent with which the same are billed, or if billed
separately, shall be due within twenty (20) days after such billing. Failure by
Tenant to promptly pay Landlord's proper charges for extra utilities or services
shall give Landlord the right, in addition to any other remedies available to
Landlord, to discontinue furnishing such utilities or services, and no such
discontinuance shall be deemed an eviction or disturbance of Tenant's use of the
Premises or render Landlord liable for damages or relieve Tenant from
performance of Tenant's obligations under this Lease.
As to the Annex Premises only, the Annex Premises shall be separately
metered with no limitations on the amount of electricity used by Tenant, and
Tenant shall pay the cost for same (not to exceed Landlord's cost) to Landlord
quarterly.
(e) Landlord may install and operate meters or any other reasonable
system for monitoring or estimating any services or utilities used by Tenant in
excess of those required to be provided by Landlord under this Article
(including a system for Landlord's engineer to reasonably estimate any such
excess usage). If such system indicates such excess services or utilities,
Tenant shall pay Landlord's reasonable charges for installing and operating such
system and any supplementary air-conditioning, ventilation, heat, electrical or
other systems or equipment (or adjustments or modifications to the existing
Systems and Equipment), and Landlord's reasonable charges for such amount of
excess services or utilities used by Tenant.
(f) Tenant agrees that Landlord does not warrant that any services or
utilities will be free from shortages, failures, variations, or interruptions
caused by repairs, maintenance, replacements, improvements, alterations, changes
of service, strikes, lockouts, labor controversies, accidents, inability to
obtain services, fuel, steam, flood, water or supplies, governmental
requirements or requests, act or omission of Tenant or any other tenant or
occupant of the Building, or other causes beyond Landlord's control. None of the
same shall be deemed an eviction or disturbance of Tenant's use and possession
of the Premises or any part thereof, or render Landlord liable to Tenant for
abatement of Rent, or otherwise or relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord and Landlord's beneficiaries (if Landlord
is a trustee of a land trust), and their respective agents shall in no event be
liable to
6
<PAGE> 10
Tenant for damages by reason of loss of profits, business interruption or other
consequential damages.
(g) Whenever, in Landlord's reasonable judgment, Tenant's use or
occupancy of the Premises, including lighting, personnel, heat generating
machines or equipment, or airborne emissions of smoke or other particulates,
individually or cumulatively, causes the design loads for the system providing
heat and air-cooling to be exceeded, or otherwise affects adversely the
temperature, humidity or air quality otherwise maintained by the heating,
ventilating and air handling or conditioning system in the Premises or the
Building, Landlord may, but shall not be obligated to, temper such excess loads
by installing supplementary heating or air handling or air cooling units in the
Premises or elsewhere where necessary. In such event, the cost of such units and
the expense of installation, including, without limitation, the cost of
preparing working drawings and specifications, plus fifteen percent (15%) of
such cost as an overhead and supervision fee, shall be paid by Tenant as
additional rent within ten (10) days after Landlord's demand therefor.
Alternatively, Landlord may require Tenant to install such supplementary heating
or air handling or air cooling units at Tenant's sole expense. Landlord may
operate and maintain any such supplementary units, but shall have no continuing
obligation to do so or liability in connection therewith. The expense resulting
from the operation and maintenance of any such supplementary heating or air
handling or cooling units, including rent for space occupied by any
supplementary heating or air handling or cooling units installed in rentable
area outside the Premises, shall be paid by Tenant to Landlord as additional
rent at rates fixed by Landlord.
(h) Compliance with any mandatory or voluntary energy conservation
measures or other legal requirements instituted by any appropriate governmental
authority shall not be considered a violation of any terms of this Lease and
shall not entitle Tenant to terminate this Lease or require abatement or
reduction of Rent hereunder, unless compliance with same materially affects
Tenant's use of the Premises as set forth herein.
(i) Notwithstanding anything contained in the Lease to the contrary,
Landlord acknowledges that Tenant will be installing a generator and related
equipment on the roof of the Annex Building and Landlord agrees to cooperate
with Tenant in all appropriate and necessary linking with Tenant's operations in
the Building, provided Tenant has submitted generator equipment specifications
to Landlord and provided Landlord has approved same, such approval not to be
unreasonably withheld. Landlord shall bear no responsibility for the maintenance
and/or operation of Tenant's generator. Tenant shall hold Landlord harmless
from any damage or malfunction of said generator, unless such damage or
malfunction is from the gross negligence or willful misconduct of Landlord, its
employees or agents.
(j) Notwithstanding anything contained in this Article 7 to the
contrary, Landlord shall not restrict Tenant's right to install and maintain
(either by its own employees or third parties) all wiring, linkups, cables and
equipment necessary to Tenant's networking and telecommunication operation
provided installation and maintenance of same does not materially affect base
building systems to include but not limited to HVAC, electrical, fire safety,
and plumbing systems.
ARTICLE 8
ALTERATIONS AND LIENS
Tenant shall make no additions, changes, alterations or improvements
("Alterations") to the Premises or the Systems and Equipment (as defined in
Article 25) pertaining to the Premises without in each instance the prior
written consent of Landlord. Landlord may impose such requirements upon Tenant
as Landlord may deem to be necessary or advisable as a condition of such
consent, including without limitation, submitting plans and specifications for
Landlord's prior written approval, obtaining necessary permits, posting bonds,
obtaining insurance, prior approval of contractors, subcontractors and
suppliers, prior receipt of copies of all contracts and subcontracts, contractor
and subcontractor lien waivers, affidavits listing all contractors,
subcontractors and suppliers, use of union labor, affidavits from engineers
acceptable to Landlord stating that the Alterations will not adversely affect
the Systems and Equipment or the structure of the Property, and requirements as
to the manner and times in which such Alterations shall be done. All Alterations
shall be at Tenant's expense and shall comply with all insurance requirements
and with all Laws. All Alterations shall be performed in a good and workmanlike
manner and all materials used shall be of a quality comparable to or better than
those in the Premises and Property and shall be in accordance with plans and
specifications approved by
7
<PAGE> 11
Landlord, and Landlord may require that all such Alterations be performed under
Landlord's supervision. In all cases, Tenant shall pay Landlord a reasonable fee
not to exceed fifteen percent (15%) of the cost of the Alterations to cover
Landlord's overhead in reviewing Tenant's plans and specifications and
performing any supervision of the Alterations. Landlord's approval of Tenant's
plans and specifications shall create no responsibility or liability on the part
of Landlord and their agents for the completeness, design, sufficiency, or
compliance with Laws of such plans and specifications. If Landlord consents to
or supervises the Alterations, consent or supervision shall not be deemed a
warranty by Landlord or their agents as to the adequacy of the workmanship or
quality or materials, and Landlord hereby expressly disclaims any responsibility
or liability for the same except for that which is cause by Landlord's gross
negligence or willfull misconduct. Landlord shall under no circumstances have
any obligation to repair, maintain or replace any portion of the Alterations.
Tenant shall keep the Property and Premises free from any mechanic's,
materialman's or similar liens or other such encumbrances in connection with any
Alterations on or respecting the Premises and shall indemnify and hold Landlord
harmless from and against any claims, liabilities, judgments, or costs
(including attorneys' fees) arising out of the same or in connection therewith.
Tenant shall give Landlord notice at least twenty (20) days prior to the
commencement of any Alterations on the Premises (or such additional time as may
be necessary under applicable Laws), to afford Landlord the opportunity of
posting and recording appropriate notices of non-responsibility. Tenant shall
remove any such lien or encumbrance by bond or otherwise within ten (10) days
after written notice by Landlord, and if Tenant shall fail to do so, Landlord
may pay the amount necessary to remove such lien or encumbrance, without being
responsible for investigating the validity thereof. The amount so paid, with
interest at the Default Rate (as defined in Article 25) on the amounts owed by
Tenant to Landlord, shall be deemed additional Rent under this Lease payable
upon demand, without limitation as to other remedies available to Landlord under
this Lease. Nothing contained in this Lease shall authorize Tenant to do any act
which shall subject Landlord's title to the Property or Premises to any liens or
encumbrances whether claimed by operation of law or express or implied contract.
Any claim to a lien or encumbrance upon the Property or Premises arising in
connection with any Alterations on or respecting the Premises not performed by
or at the request of Landlord shall be null and void, or at Landlord's option
shall attach only against Tenant's interest in the Premises and shall in all
respects be subordinate to Landlord's title to the Property and Premises.
Nothing contained herein shall prohibit Tenant from contesting the validity of
any lien.
ARTICLE 9
REPAIRS
Tenant shall, at its own expense, keep the Premises in good and
sanitary condition and working order and repair (including, without limitation,
any and all carpeting, wallcovering, doors, plumbing and other fixtures,
equipment, alterations, and improvements contained within the Premises and
exclusively servicing the Premises, whether any of the foregoing was installed
by Landlord or Tenant), and in conformity with all Laws, except if Landlord
elects to make such repairs at Tenant's expense as hereinafter provided. Tenant
shall promptly and adequately repair all damage to the Premises caused by Tenant
or any of its employees, agents, licensees, invitees or contractors, including
replacing or repairing all damaged or broken glass, fixtures and appurtenances
resulting from any such damage, with materials approved in advance by Landlord
and within any reasonable period of time approved by Landlord. Landlord may, but
shall have no obligation to, elect to make any or all repairs on Tenant's behalf
at Tenant's sole cost or, upon Tenant's request, perform any such repairs at
Tenant's sole cost. In either case where Landlord has made such election to
perform repairs, Tenant shall pay the cost thereof and, in addition, Tenant
shall pay to Landlord an amount equal to fifteen percent (15%) of such cost as
an overhead and supervision fee. If Tenant does not make repairs within a
reasonable time and adequately when required to do so (Landlord having not
previously elected to do so), Landlord may, but need not, make such repairs and
replacements and Tenant shall pay Landlord, on written demand, the cost thereof.
Subject to the foregoing, at Landlord's election, any repairs, maintenance or
replacements made by Tenant shall either be through Landlord for such reasonable
charges as Landlord may from time to time establish, or such contractors as
Landlord generally uses at the Property or such other contractors as Landlord
shall first approve in writing, and in a first class, workmanlike manner
approved by Landlord in advance in writing, such approval not to be unreasonably
withheld. If Tenant does not promptly make such arrangements, Landlord may, but
need not, make such repairs, maintenance and replacements, and the costs paid or
incurred by Landlord therefor, with interest at the Default Rate (as defined in
Article 25) on the amounts owed by Tenant to Landlord, shall be reimbursed by
Tenant promptly after request
8
<PAGE> 12
by Landlord. Tenant shall indemnify Landlord and pay for any repairs,
maintenance and replacements to areas of the Property outside the Premises,
caused, in whole or in part, as a result of moving any furniture, fixtures, or
other property to or from the Premises, or by Tenant or its employees, agents,
contractors, or visitors (notwithstanding anything to the contrary contained in
this Lease). Except as provided in the preceding sentence, or for damage covered
under Article 10, Landlord shall keep the common areas of the Property in good
and sanitary condition, working order and repair (the cost of which shall be
included in Operating Expenses, as described in Article 25, except as limited
therein).
ARTICLE 10
CASUALTY INSURANCE
(a) If the Premises or any common areas of the Property providing
access thereto shall be damaged by fire or other casualty, and except as
otherwise provided in this Article 10, Landlord shall restore the same to the
Base Building improvements, but in no event shall Landlord be obligated to
expend any sums in excess of insurance proceeds available to Landlord or which
should have been available if Landlord was adequately insured pursuant to
Article 11 (e) of this Lease. Such restoration shall be to substantially the
condition prior to the casualty, except for modifications required by zoning and
building codes and other Laws or by any Mortgagee or Ground Lessor, any other
modifications to the common areas deemed reasonably desirable by Landlord and
except that Landlord shall not be required to repair or replace any of Tenant's
furniture, furnishings, fixtures or equipment, or any alterations or
improvements, additions or alterations made by or on behalf of Tenant in the
Premises, including improvements performed by Tenant or Landlord pursuant to the
Workletter, if any. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting in
any way from such damage or the repair thereof. However, Landlord shall allow
Tenant a proportionate abatement of Rent during the time and to the extent the
Premises are unfit for occupancy for the purposes permitted under this Lease and
not occupied by Tenant as a result thereof (unless Tenant or its employees or
agents caused the damage). Notwithstanding anything contained in this Article 10
to the contrary, Landlord may elect to terminate this Lease by notifying Tenant
in writing of such termination within sixty (60) days after the date of damage
(such termination notice to include a termination date providing at least ninety
(90) days for Tenant to vacate the Premises), if the Property shall be
materially damaged by Tenant or its employees or agents, or if the Property
shall be damaged by fire or other casualty or cause such that: (i) repairs to
the Premises and access thereto or to the Building cannot reasonably be
completed within 120 days after the casualty without the payment of overtime or
other premiums, (ii) more than 25% of the Premises is affected by the damage,
and fewer than 24 months remain in the Term, or any material damage occurs to
the Premises during the last 12 months of the Term, (iii) any Mortgagee or
Ground Lessor shall require that the insurance proceeds or any portion thereof
be used to retire the Mortgage debt (or shall terminate the Ground Lease, as the
case may be), or the damage is not fully covered by Landlord's insurance
policies, or (iv) the cost of the repairs, alterations, restoration or
improvement work would exceed 25% of the replacement value of the Building, or
the nature of such work would make termination of this Lease necessary. Tenant
agrees that Landlord's obligation to restore, and the abatement of Rent provided
herein, shall be Tenant's sole recourse in the event of such damage, and waives
any other rights Tenant may have under any applicable Law to terminate the Lease
by reason of damage to the Premises or Property. In the event of termination of
this Lease pursuant to this Article 10, Rent shall be apportioned on a per diem
basis and be paid to the date of termination. Tenant acknowledges that this
Article represents the entire agreement between the parties respecting damage to
the Premises or Property.
In the event of damage to the Premises or to the Building which
Landlord is obligated to or elects to repair pursuant to this Article, if
Landlord shall not have commenced such repairs within one hundred eighty (180)
days of the date of the casualty or, once commenced, Landlord fails to restore
the Premises (to a state whereby Tenant can commence its work) within twelve
(12) months, Tenant may elect to terminate this Lease upon thirty (30) days
prior written notice to Landlord.
(b) In the event of any such fire or other casualty, and if this Lease
is not terminated pursuant to the foregoing provisions of this Article 10,
Tenant shall repair and restore any portion of alterations, additions or
improvements made by or on behalf of Tenant in the Premises which Landlord is
not required to restore under paragraph 10(a) hereof excluding any restoration
to the Base Building Improvements not covered by Tenant's insurance.
9
<PAGE> 13
ARTICLE 11
INSURANCE; SUBROGATION
(a) Tenant shall maintain during the Term or at any earlier time that
Tenant is entitled to occupy the Premises, comprehensive (or commercial) public
liability insurance with the broad form commercial liability endorsement,
including contractual liability insurance covering Tenant's indemnity
obligations hereunder, insuring against claims for death, bodily injury,
personal injury and property damage or destruction (including loss of use
thereof) occurring upon, in or about the Premises in an amount of not less than
$2,000,000 for any one occurrence. Tenant shall also maintain during the Term
worker compensation insurance as required by statute, and primary,
noncontributory, "all-risk" property damage insurance covering all additions,
improvements and alterations to the Premises, and all of Tenant's personal
property, business records, fixtures and equipment, for damage or other loss
caused by fire or other casualty or cause including, but not limited to, fire,
vandalism and malicious mischief, theft, water damage of any type, including
sprinkler leakage, bursting or stoppage of pipes, explosion, business
interruption, and other insurable risks included in extended coverage policies,
in amounts not less than the full insurable replacement value of such additions,
improvements and alterations, and property and full insurable value of such
other interests of Tenant (subject to reasonable deductible amounts).
(b) Prior to the Commencement Date and any earlier time that Tenant is
entitled to occupy the Premises, or any portion thereof, Tenant shall provide
Landlord with certified copies of policies (with proof of payment in full of the
annual premium) evidencing such coverage (and, with respect to liability
coverage, naming, as additional insureds, Landlord, or any Building manager, all
Mortgagees (as hereinafter defined), and if Landlord requires, Landlord's
architect or contractor who may perform services or work in, on, about or in
connection with the Premises; and their respective agents, contractors,
managers, members, partners and employees, as their interests may appear.
Tenant's policies shall state that such insurance coverage may not be changed,
amended, nor renewed or cancelled without at least thirty (30) days' prior
written notice to Landlord. Such policies shall provide renewal certificates to
Landlord at least twenty (20) days prior to expiration of such policies.
Landlord shall have the right, from time to time, to require that Tenant
increase the amount and/or type of coverage required to be maintained by Tenant
under this Lease in accordance with standard business practice for similar
property in the Nashville area. Each policy evidencing the insurance to be
carried by Tenant under this Lease shall contain a clause that such policy and
the coverage as evidenced thereby shall be primary with respect to any policies
carried by Landlord, and that any coverage carried by Landlord shall be excess
insurance. Except as provided to the contrary herein, any insurance carried by
Landlord or Tenant shall be for the sole benefit of the party carrying such
insurance. All insurance required hereunder to be carried by Tenant shall be on
an "occurrence" rather than a "claims made" basis, and shall be provided by
insurers acceptable to Landlord and licensed in the State of Tennessee. Such
insurer shall at all times during the Term have a policyholder's rating of not
less than "A- and 7" in the most current edition of Best's Reports.
(c) By this Article, Landlord and Tenant intend that their respective
property loss risks shall be borne by responsible insurance carriers to the
extent above provided, and Landlord and Tenant hereby agree to look solely to
and seek recovery only from, their respective insurance carriers in the event of
a property loss to the extent that such coverage is agreed to be provided
hereunder. The parties each hereby waive all rights and claims against each
other, for such losses, and waive all rights of subrogation of their respective
insurers. The parties agree that their respective insurance policies are now, or
shall be, endorsed such that said waiver of subrogation shall not affect the
right of the insured to recover thereunder.
(d) Tenant shall comply with all applicable Laws, all orders and
decrees of court and all requirements of other governmental authority, and shall
not directly or indirectly make any use of the Premises which may thereby be
prohibited or be dangerous to person or property or which may jeopardize any
insurance coverage, or cause any increase in the cost of insurance or require
additional insurance coverage; or which shall be hazardous or toxic or violate
any environmental laws.
(e) Landlord shall maintain all such insurance policies as are standard
and commercially prudent for landlords to maintain in the Nashville area for
similar properties.
10
<PAGE> 14
ARTICLE 12
CONDEMNATION
If the whole or any material part of the Premises or Property shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction or remodeling of any part of
the Premises or Property, or if Landlord shall grant a deed or other instrument
in lieu of such taking by eminent domain or condemnation, the Term of this Lease
shall end upon and not before the earlier of the date when the possession of the
part so taken shall be required for such use or purpose, and the effective date
of the taking. Landlord shall be entitled to receive the entire award or payment
in connection therewith, except that Tenant shall have the right to file any
separate claim available to Tenant for any taking of Tenant's personal property
and fixtures belonging to Tenant and removable by Tenant upon expiration of the
Term, and for moving expenses (so long as such claim does not diminish the award
available to Landlord or any Holder, and such claim is payable separately to
Tenant). All Rent shall be apportioned as of the date of such termination, or
the date of such taking, whichever shall first occur. If any part of the
Premises shall be taken, and this Lease shall not be so terminated, the Rent
shall be proportionately abated.
ARTICLE 13
RETURN OF POSSESSION
At the expiration or earlier termination of this Lease or Tenant's
right of possession, Tenant shall surrender possession of the Premises in the
condition required under Article 9, ordinary wear and tear and damage due to
casualty not covered by either party's insurance excepted, and shall surrender
all keys any key cards, and any parking stickers or cards, to Landlord, and
advise Landlord as to the combination of any locks vaults then remaining in the
Premises, and shall remove all trade fixtures and personal property and shall
promptly remove all wiring and cabling. All improvements, fixtures and other
items in or upon the Premises (except trade fixtures and personal property
belonging to Tenant, whether installed by Tenant or Landlord) shall be
Landlord's property and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. Without limiting anything contained
in the immediately preceding sentence, Tenant shall promptly repair any damage
to the Premises occasioned by Tenant's removal of its trade fixtures or personal
property. If Tenant shall fail to perform any repairs or restoration, or fail to
remove any items from the Premises required hereunder, Landlord may do so, and
Tenant shall pay Landlord the cost thereof upon demand. All property removed
from the Premises by Landlord pursuant to any provisions of this Lease or any
Law may be handled or stored by Landlord at Tenant's expense, and Landlord shall
in no event be responsible for the value, preservation or safekeeping thereof.
Any property not removed from the Premises or retaken from storage by Tenant
within thirty (30) days after expiration or earlier termination of this Lease or
Tenant's right to possession, shall at Landlord's option be conclusively deemed
to have been conveyed by Tenant to Landlord as if by bill of sale without
payment by Landlord. Unless prohibited by applicable Law, Landlord shall have a
lien against such property for the costs incurred in removing and storing the
same.
11
<PAGE> 15
ARTICLE 14
HOLDING OVER
Unless Landlord expressly agrees otherwise in writing, Tenant shall pay
Landlord 150% of the amount of Rent then applicable (or the highest amount
permitted by Law, whichever shall be less) prorated on a per diem basis for each
day Tenant shall retain possession of the Premises or any part thereof after
expiration or earlier termination of this Lease. The foregoing provisions shall
not serve as permission for Tenant to hold-over, nor serve to extend the Term
(although Tenant shall remain bound to comply with all provisions of this Lease
until Tenant vacates the Premises, and shall be subject to the provisions of
Article 13). Notwithstanding the foregoing to the contrary, at any time before
or after expiration or earlier termination of the Lease, Landlord may serve
notice advising Tenant of the amount of Rent and other terms required, should
Tenant desire to enter a month-to-month tenancy (and if Tenant shall hold over
more than one full calendar month after such notice, Tenant shall thereafter be
deemed a month-to-month tenant, on the terms and provisions of this Lease then
in effect, as modified by Landlord's notice, and except that Tenant shall not be
entitled to any renewal or expansion rights contained in this Lease or any
amendments hereto).
ARTICLE 15
NO WAIVER
No provision of this Lease will be deemed waived by either party unless
expressly waived in writing signed by the waiving party. No waiver shall be
implied by delay or any other act or omission of either party. No waiver by
either party of any provision of this Lease shall be deemed a waiver of such
provision with respect to any subsequent matter relating to such provision, and
Landlord's consent or approval respecting any action by Tenant shall not
constitute a waiver of the requirement for obtaining Landlord's consent or
approval respecting any subsequent action. Acceptance of Rent by Landlord shall
not constitute a waiver of any breach by Tenant of any term or provision of this
Lease. No acceptance of a lesser amount than the Rent herein stipulated shall be
deemed a waiver of Landlord's right to receive the full amount due, nor shall
any endorsement or statement on any check or payment or any letter accompanying
such check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the full amount due. The acceptance of Rent or of the performance of any other
term or provision from any Person other than Tenant, including any Transferee,
shall not constitute a waiver of Landlord's right to approve any Transfer.
ARTICLE 16
ATTORNEYS' FEES AND JURY TRIAL; VENUE
(a) Tenant shall pay all of Landlord's costs, charges and expenses,
including, without limitation, court costs and reasonable attorney's fees,
incurred in enforcing Tenant's obligations under this Lease or incurred by
Landlord in any litigation, negotiation or transaction in which Tenant causes
Landlord, without Landlord's fault, to become involved or concerned. Landlord
shall pay all of Tenant's costs, charges and expenses, including and without
limitation, court costs and reasonable attorney's fees, (i) in enforcing
Landlord's obligations under this Lease, or (ii) incurred by Tenant in any
litigation, negotiation, or transaction in which Landlord causes Tenant, without
Tenant's fault, to become involved or concerned.
(b) IN THE INTEREST OF OBTAINING A SPEEDIER AND LESS COSTLY HEARING OF
ANY DISPUTE, THE PARTIES HEREBY EACH IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY
JURY.
(c) If either Landlord or Tenant desires to bring an action against the
other in connection with this Lease, such action shall be brought in the federal
or state courts located in Nashville, Davidson County, Tennessee. Landlord and
Tenant consent to the jurisdiction of such courts and waive any right to have
such action transferred from such courts on the grounds of improper venue or
inconvenient forum.
12
<PAGE> 16
ARTICLE 17
PERSONAL PROPERTY TAXES, RENT TAXES AND OTHER TAXES
Tenant shall pay prior to delinquency all taxes, charges or other
governmental impositions assessed against or levied upon Tenant's fixtures,
furnishings, equipment and personal property located in the Premises, and any
Alterations to the Premises under Article 8. Whenever possible, Tenant shall
cause all such items to be assessed and billed separately, from the property of
Landlord. In the event any such items shall be assessed and billed with the
property of Landlord, Tenant shall pay Landlord its share of such taxes, charges
or other governmental impositions within thirty (30) days after Landlord
delivers a statement and a copy of the assessment or other documentation showing
the amount of Impositions applicable to Tenant's property. Tenant shall pay any
rent tax or sales tax, service tax, transfer tax or value added tax, or any
other applicable tax on the Rent or services herein or otherwise respecting this
Lease.
ARTICLE 18
TENANT'S AUTHORITY
In case Tenant is a corporation, Tenant (a) represents and warrants
that this Lease has been duly authorized, executed and delivered by and on
behalf of Tenant and constitutes the valid and binding agreement of Tenant in
accordance with the terms hereof, and (b) if Landlord so requests, Tenant shall
deliver to Landlord, concurrently with the delivery of this Lease executed by
Tenant, certified resolutions of the board of directors (and shareholders, if
required) authorizing Tenant's execution and delivery of this Lease and the
performance of Tenant's obligations hereunder. As to any Tenant which is ever a
partnership, each and every present and future partner in Tenant shall be and
remain at all times jointly and severally liable hereunder, and to the extent
permitted by law, the death, resignation or withdrawal of any general partner
shall not release the liability of such partner under the terms of this Lease
unless and until Landlord shall have consented in writing to such release.
Landlord may request and Tenant shall provide a written confirmation from
Tenant's future partners from time to time of their agreement to be so bound by
this Lease. If Tenant is a partnership or corporation whose stock is not
publicly traded, or a limited liability company, then at the time this Lease is
executed and from time to time thereafter, at Landlord's request, Tenant shall
furnish Landlord with a list of Tenant's partners or shareholders or managers
and members, as the case may be.
ARTICLE 19
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION
(a) Landlord may have heretofore or may hereafter encumber with a
security interest, assignment, mortgage or trust deed the Building, the Property
or any interest therein, and may have heretofore and may hereafter sell and
lease back the Property, or any part thereof, and may have heretofore or may
hereafter assign or encumber the leasehold estate under such lease with an
assignment, mortgage or trust deed. (Any such security interest, assignment,
mortgage or trust deed is herein called a "Mortgage" and the holder of any such
security interest, assignment, mortgage or the beneficiary under any such trust
deed is herein called a "Mortgagee". Any such lease of the underlying land is
herein called a "Ground Lease", and the lessor under any such lease is herein
called a "Ground Lessor". Any Mortgage which is a first lien against the
Building, the Property, the leasehold estate under a Ground Lease or any
interest therein is herein called a "First Mortgage" and the holder or
beneficiary of any First Mortgage is herein called a "First Mortgagee").
13
<PAGE> 17
(b) Tenant's rights under this Lease are subject and subordinate to the
operation and effect of any Mortgage, whether the same shall be in existence as
of the date hereof or created hereafter, and to any and all advances made
thereunder and to the interest thereon, and to all renewals, replacements,
supplements, amendments, modifications and extensions thereof. Tenant's
acknowledgement and agreement of subordination provided for in this Section is
self-operative and no further instrument of subordination shall be required;
however, upon the request of Landlord, Mortgagee or Ground Lessor, Tenant will
promptly execute and deliver such subordination, attornment or similar
instruments, agreement or agreements as may be reasonably required by such
Mortgagee or Ground Lessor. In the event of any subsequent Mortgage and a
request to Tenant to execute such agreement, Mortgagee shall provide to Tenant
non-disturbance and attornment recognizing this Lease and Tenant's rights
hereunder.
(c) It is further agreed that (i) if any Mortgage shall be foreclosed,
or if any Ground Lease be terminated, (A) the liability of the Mortgagee or
Ground Lessor, or purchaser at such foreclosure sale or the liability of a
subsequent owner designated as Landlord under this Lease shall exist only so
long as such Mortgagee, purchaser or owner is the owner of the Building, the
Property, and such liability shall not continue or survive after further
transfer of ownership; (B) the Mortgagee or Ground Lessor or their successors or
assigns that succeeds to the interest of the Landlord in the Building or the
Property or acquires the right to possession of the Building or the Property,
shall not be (1) liable for any act or omission of the party named above as the
Landlord under this Lease; (2) liable for the performance of Landlord's
covenants pursuant to the provisions of this Lease which arise and accrue prior
to such entity succeeding to the interest of Landlord under this Lease or
acquiring such right to possession; (3) subject to any offsets or defenses which
Tenant may have at any time against Landlord; (4) bound by any Rent which Tenant
may have paid previously for more than one (1) month; or (5) liable for the
performance of any covenant of Landlord under this Lease which is capable of
performance only by the original Landlord; and (C) upon request of the
Mortgagee, if the Mortgage shall be foreclosed, Tenant will attorn, as Tenant
under this Lease, to the purchaser at any foreclosure sale under any Mortgage or
upon request of the Ground Lessor, if any Ground Lease shall be terminated,
Tenant will attorn as Tenant under this Lease to the Ground Lessor, and Tenant
will execute such instruments as may be necessary or appropriate to evidence
such attornment; and (ii) this Lease may not be modified or amended so as to
reduce the rent or shorten the Term, or so as to adversely affect in any other
respect to any material extent the rights of Landlord or Tenant, nor shall this
Lease be cancelled or surrendered, without the prior written consent, in each
instance, of the First Mortgagee or any Ground Lessor. Landlord shall use
reasonable efforts to obtain a non-disturbance and attornment agreement for
Tenant from any mortgagee or successor in interest to Landlord so long as Tenant
is not in default beyond any applicable notice or cure period.
(d) Should any prospective Mortgagee or Ground Lessor require a
modification or modifications of this Lease, which modification or modifications
will not cause an increased cost or expense to Tenant or in any other way
materially and adversely change the rights and obligations of Tenant hereunder,
then, and in such event, Tenant agrees that this Lease may be so modified and
agrees to execute whatever documents are required therefor and deliver the same
to Landlord within fifteen (15) days following the request therefor. Should any
prospective Mortgagee or Ground Lessor require execution of a short form of
lease for recording (containing, among other customary provisions, the names of
the parties, a description of the Premises and the Term of this Lease), Tenant
agrees to execute such short form of lease and deliver the same to Landlord
within fifteen (15) days following the request therefor.
(e) Tenant agrees to give any Mortgagee and Ground Lessor, by
registered or certified mail, a copy of any notice or claim of default served
upon Landlord by Tenant, provided that prior to such notice Tenant has been
notified in writing (by way of service on Tenant a copy of an assignment of
Landlord's interests in leases, or otherwise) of the address of such Mortgagee
and Ground Lessor. Tenant further agrees that if Landlord shall have failed to
cure such default within twenty (20) days after such notice to Landlord (or if
such default cannot be cured or corrected within that time, then such additional
time as may be necessary if Landlord has commenced within such twenty (20) days
and is diligently pursuing the remedies or steps necessary to cure or correct
such default), then the Mortgagee or Ground Lessor shall have an additional
thirty (30) days within which to cure or correct such default (or if such
default cannot be cured or corrected within that time, then such additional time
as may be necessary if such Mortgagee or Ground Lessor has commenced within such
thirty (30) days and is diligently pursuing the remedies or steps necessary to
cure or correct such default) before Tenant may exercise any right or remedy
which it may have on account of any such default of Landlord.
14
<PAGE> 18
ARTICLE 20
ESTOPPEL CERTIFICATE
Tenant agrees that from time to time upon not less than five (5) days
prior request by Landlord, or any existing or prospective Mortgagee or Ground
Lessor, Tenant will, and Tenant will cause any subtenant, licensee,
concessionaire or other occupant of the Premises claiming by, through or under
Tenant to, complete, execute and deliver to Landlord or Landlord's designee or
to any Mortgagee or Ground Lessor, a written estoppel certificate certifying to
Tenant's actual knowledge (a) that this Lease is unmodified and in full force
and effect (or if there have been modifications, that this Lease as modified is
in full force and effect and identifying the modifications); (b) the date upon
which Tenant began paying Rent and the dates to which the Rent and other charges
have been paid; (c) that Landlord is not in default under any provision of this
Lease, or, if in default, the nature thereof in detail; (d) that the Premises
have been completed in accordance with the terms hereof and Tenant is in
occupancy and paying Rent on a current basis with no rental offsets or claims;
(e) that there has been no prepayment of Rent other than that provided for in
this Lease; (f) that there are no actions, whether voluntary or otherwise,
pending against Tenant under the Bankruptcy Code or the bankruptcy, insolvency,
reorganization, liquidation, dissolution, compensation, receivership or other
laws of any state for the relief of debtors; and (g) such other matters as may
be required by Landlord, Mortgagee or Ground Lessor, including, without
limitation, any other information concerning the status of this Lease or the
parties' performance hereunder reasonably requested by the party to whom such
estoppel certificate is to be addressed. Tenant's failure to complete, execute
and deliver any such estoppel certificate within the aforesaid 5-day period
shall be deemed to be a Default under this Lease, or, alternatively, at
Landlord's election, Tenant shall be deemed to have agreed with the matters set
forth in an estoppel letter prepared and delivered by Landlord.
ARTICLE 21
ASSIGNMENT AND SUBLETTING
(A) TRANSFERS. Tenant shall not, without the prior written consent of
Landlord, which consent Landlord, at Landlord's sole and exclusive discretion,
may withhold: (i) assign, mortgage, pledge, hypothecate, encumber, or permit any
lien to attach to, or otherwise transfer, this Lease or any interest hereunder,
by operation of law or otherwise. (ii) sublet the Premises or any part thereof,
or (iii) permit the use of the Premises by any Persons (as defined in Article
25) other than Tenant and its employees (all of the foregoing are hereinafter
sometimes referred to collectively as "Transfers" and any Person to whom any
Transfer is made or sought to be made is hereinafter sometimes referred to as a
"Transferee"). If Tenant shall desire Landlord's consent to any Transfer, Tenant
shall notify Landlord in writing, which notice shall include: (a) the proposed
effective date (which shall not be less than 30 nor more than 180 days after
Tenant's notice), (b) the portion of the Premises to be Transferred (herein
called the "Subject Space"), (c) the terms of the proposed Transfer and the
consideration therefor, the name and address of the proposed Transferee, and a
copy of all documentation pertaining to the proposed Transfer, and (d) current
financial statements of the proposed Transferee certified by an officer, partner
or owner thereof and any other information to enable Landlord to determine the
financial responsibility, character, and reputation of the proposed Transferee,
nature of such Transferee's business and proposed use of the Subject Space, and
such other information as Landlord may reasonably require. Any Transfer made
without complying with this Article shall at Landlord's option be null, void and
of no effect, or shall constitute a Default under this Lease. Whether or not
Landlord shall grant consent, Tenant shall pay, within thirty (30) days after
written request by Landlord, $300.00 towards Landlord's review and processing
expenses, plus any reasonable legal fees incurred by Landlord in connection with
any proposed Transfer.
Notwithstanding anything to the contrary contained here, Tenant shall
have the right to assign this Lease, with the Landlord's written approval
obtained in each and every case, such approval not to be unreasonably withheld,
to (i) a parent company, (ii) a majority owned subsidiary, (iii) a subsidiary of
Tenant's parent corporation, (iv) a corporation merging with Tenant, (v) a
corporation resulting from a merger between Tenant and another corporation, and
(vi) any entity buying all or a majority of Tenant's assets. Assignee shall
comply with all terms and conditions of this Lease.
15
<PAGE> 19
(B) TRANSFER PREMIUM. If Landlord consents to a Transfer, and as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
Landlord one hundred percent (100%) of any Transfer Premium derived by Tenant
from such Transfer. "Transfer Premium" shall mean all rent, additional rent or
other consideration paid by such Transferee in excess of the Rent payable by
Tenant under this Lease (on a monthly basis during the Term, and on a per
rentable square foot basis, if less than all of the Premises is transferred),
after deducting the reasonable expenses incurred by Tenant for any changes,
alterations and improvements to the Premises, any other economic concessions or
services provided to the Transferee, and any customary brokerage commissions
paid in connection with the Transfer as well as amounts paid to Tenant as
compensation for leasehold improvements, trade fixtures, equipment or other
personal property sold or leased to the Transferee). If part of the
consideration for such Transfer shall be payable other than in cash, Landlord's
share of such non-cash consideration shall be in such form as is reasonably
satisfactory to Landlord. The Transfer Premium due Landlord hereunder shall be
paid within five (5) days after Tenant receives any Transfer Premium from the
Transferee.
(C) RECAPTURE. Notwithstanding anything to the contrary contained in
this Article, Landlord shall have the option, by giving written notice to Tenant
within thirty (30) days after receipt of Tenant's notice of any proposed
Transfer, to recapture the Subject Space. Such recapture notice shall cancel and
terminate this Lease with respect to the Subject Space as of the date stated in
Tenant's notice as the effective date of the proposed Transfer (or at Landlord's
option, shall cause the Transfer to be made to Landlord or its agent, in which
case the parties shall execute the Transfer documentation promptly thereafter)
unless Landlord receives from Tenant a notice withdrawing its request for
transfer within five (5) days of Tenant's receipt of the recapture notice. If
this Lease shall be cancelled with respect to less than the entire Premises, the
Rent reserved herein shall be prorated on the basis of the number of rentable
square feet retained by Tenant in proportion to the number of rentable square
feet contained in the Premises. This Lease as so amended shall continue
thereafter in full force and effect, and upon request of either party, the
parties shall execute written confirmation of the same.
(D) TERMS OF CONSENT. If Landlord consents to a Transfer: (a) the terms
and conditions of this Lease, including among other things, the original named
Tenant's liability for the Subject Space, and Rent with respect thereto, shall
in no way be deemed to have been released, waived or modified, (b) such consent
shall not be deemed consent to any further Transfer by either Tenant or a
Transferee, (c) no Transferee shall succeed to any rights provided in this Lease
or any amendment hereto to extend the Term of this Lease, expand the Premises,
or lease additional space, any such rights being deemed personal to Tenant, (d)
Tenant shall deliver to Landlord promptly after execution, an original executed
copy of all documentation pertaining to the Transfer in form reasonably
acceptable to Landlord, and (e) Tenant shall furnish upon Landlord's request a
complete statement, certified by an independent certified public accountant, or
Tenant's chief financial officer, setting forth in detail the computation of any
Transfer Premium Tenant has derived and shall derive from such Transfer.
Landlord or its authorized representatives shall have the right at all
reasonable times to audit the books, records and papers of Tenant relating to
any Transfer, and shall have the right to make copies thereof. If the Transfer
Premium respecting any Transfer shall be found understated, Tenant shall within
thirty (30) days after demand pay the deficiency, and if understated by more
than 2%, Tenant shall pay Landlord's costs of such audit. Any sublease hereunder
shall be subordinate and subject to the provisions of this Lease, and if this
Lease shall be terminated during the term of any sublease, Landlord shall have
the right to: (i) treat such sublease as cancelled and repossess the Subject
Space by any lawful means, or (ii) require that such subtenant attorn to and
recognize Landlord as its landlord under any such sublease. If Tenant shall
Default and fail to cure within the time permitted for cure under Article 23(A),
Landlord is hereby irrevocably authorized, as Tenant's agent and
attorney-in-fact, to direct any Transferee to make all payments under or in
connection with the Transfer directly to Landlord (which Landlord shall apply
towards Tenant's obligations under this Lease) until such Default is cured.
(E) SUBSEQUENT CONSENTS. Consent by Landlord to any assignment,
subletting, use, occupancy, transfer or encumbrance, or any other Transfer made
pursuant to this Lease, shall not operate to relieve Tenant from any covenant or
obligation hereunder or be deemed to be a consent to or relieve Tenant from
obtaining Landlord's consent to any subsequent assignment, subletting, use,
occupancy, transfer of encumbrance by Tenant or anyone claiming by, through or
under Tenant.
16
<PAGE> 20
(F) CERTAIN TRANSFERS. For purposes of this Lease, the term "Transfer"
shall also include (i) if Tenant is a partnership, the withdrawal or change,
voluntary, involuntary or by operation of law, of a majority of the partners, or
a transfer of a majority of partnership interests, or the dissolution of the
partnership; (ii) if Tenant is a limited liability company, the withdrawal or
change, voluntary, involuntary, or by operation of law, of a majority of
members, or a transfer of a majority of the membership interests, or the
dissolution of the limited liability company; and (iii) if Tenant is a closely
held corporation (i.e., whose stock is not publicly held and not traded through
an exchange or over the counter), the dissolution, merger, consolidation or
other reorganization of Tenant, or: (1) the sale or other transfer of more than
an aggregate of 50% of the voting shares of Tenant (other than to immediate
family members by reason of gift or death) or (2) the sale, mortgage,
hypothecation or pledge of more than an aggregate of 50% of Tenant's net assets.
Upon execution of this Lease, Tenant shall deliver to Landlord a list of all of
its shareholders, members, or partners, as the case may be.
ARTICLE 22
RIGHTS RESERVED BY LANDLORD
Except to the extent expressly limited herein, Landlord reserves full
rights to control the Property (which rights may be exercised without subjecting
Landlord to claims for constructive eviction, abatement of Rent, damages or
other claims of any kind), including more particularly, but without limitation,
the following rights:
(A) To change the name or street address of the Property; install and
maintain signs on the exterior and interior of the Property; retain at all
times, and use in appropriate instances, keys to all doors within and into the
Premises; grant to any Person the right to conduct any business or render any
service at the Property, whether or not it is the same or similar to the use
permitted Tenant by this Lease; and have access for Landlord and other tenants
of the property to any mail chutes located on the Premises according to the
rules of the United States Postal Service.
(B) To enter the Premises at reasonable hours for reasonable purposes
upon reasonable prior notice, including inspection and supplying cleaning
service or other services to be provided Tenant hereunder, to show the Premises
to current and prospective mortgage lenders, ground lessors, insurers, and
prospective purchasers, tenants and brokers, at reasonable hours, and if Tenant
shall abandon the Premises at any time, or shall vacate the same during the last
3 months of the Term, to decorate, remodel, repair, or alter the Premises.
(C) To limit or prevent access to the Property, shut down elevator
service, activate elevator emergency controls, or otherwise take such action or
preventative measures deemed necessary by Landlord for the safety of tenants or
other occupants of the Property or the protection of the Property and other
property located thereon or therein, in case of fire, invasion, insurrection,
riot, civil disorder, public excitement or other dangerous condition, or threat
thereof.
(D) To decorate and to make alterations, additions and improvements,
structural or otherwise, in or to the Property or any part thereof, and any
adjacent building, structure, parking facility, land, street or alley (including
without limitation changes and reductions in corridors, lobbies, parking
facilities and other public areas and the installation of kiosks, planters,
sculptures, displays, escalators, mezzanines, and other structures, facilities,
amenities and features therein, and changes for the purpose of connection with
or entrance into or use of the Property in conjunction with any adjoining or
adjacent building or buildings, now existing or hereafter constructed). In
connection with such matters or with any other repairs, maintenance,
improvements or alterations, in or about the Property, Landlord may erect
scaffolding and other structures reasonably required, and during such operations
may enter upon the Premises and take into and upon or through the Premises, all
materials required to make such repairs, maintenance, alterations or
improvements, and may close public entry ways, other public areas, restrooms,
stairways or corridors.
(E) Intentionally deleted.
17
<PAGE> 21
ARTICLE 23
LANDLORD'S REMEDIES
(A) DEFAULT. The occurrence of any one or more of the following events
shall constitute a "Default" by Tenant, which if not cured within any applicable
time permitted for cure below, shall give rise to Landlord's remedies set forth
in Paragraph (B), below: (i) failure by Tenant to make when due any payment of
Rent, unless such failure is cured within five (5) days after notice; provided,
however, that once Landlord has given Tenant two (2) such notices during any
twelve (12)-month period, Landlord shall not be required to give further written
notice, and thereafter the failure or refusal by Tenant to timely make any
payment of Rent when due within the following twelve (12) months shall be a
Default without further notice; (ii) failure by Tenant to observe or perform any
of the terms or conditions of this Lease to be observed or performed by Tenant
other than the payment of Rent, or as provided below, unless such failure is
cured within thirty (30) days after notice, or such shorter period expressly
provided elsewhere in this Lease (provided, if the nature of Tenant's failure is
such that more time is reasonably required in order to cure, Tenant shall not be
in Default if Tenant commences to cure within such period and thereafter
reasonably seeks to cure such failure to completion); (iii) failure by Tenant to
promptly remove any hazardous condition which Tenant has created or permitted;
(iv) failure by Tenant to comply with the Rules, unless such failure is cured
within ten (10) days after notice (provided, if the nature of Tenant's failure
is such that more time is reasonably required in order to cure, Tenant shall not
be in Default if Tenant commences to cure within such period and thereafter
reasonably seeks to cure such failure to completion); (v) vacation of all or a
substantial portion of the Premises for more than thirty (30) consecutive days,
or the failure to take possession of the Premises within sixty (60) days after
the Commencement Date, (vi) (a) making by Tenant or any guarantor of this Lease
("Guarantor") of any general assignment for the benefit of creditors; (b) filing
by or against Tenant or any Guarantor of a petition to have Tenant or such
Guarantor adjudged a bankrupt or a petition for reorganization or arrangement
under any Law relating to bankruptcy, insolvency, receivership or other relief
for debtors (unless, in the case of a petition filed against Tenant or such
Guarantor, the same is dismissed within sixty (60) days), (c) appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located on the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days, (d) attachment, execution or
other judicial seizure of substantially all of Tenant's assets located on the
Premises or of Tenant's interest in this Lease, (e) Tenant's or any Guarantor's
convening of a meeting of its creditors or any class thereof for the purpose of
effecting a moratorium upon or composition of its debts, or (f) Tenant's or any
Guarantor's insolvency or admission of an inability to pay its debts as they
mature: (vii) any material misrepresentation herein, or material
misrepresentation or omission in any financial statements or other materials
provided by Tenant or any Guarantor in connection with negotiating or entering
this Lease or in connection with any Transfer under Article 21; or (viii)
cancellation of any guaranty of this Lease by any Guarantor. Failure by Tenant
to comply with the same term or condition of this Lease on three occasions
during any twelve month period shall cause any failure to comply with such term
or condition during the succeeding twelve month period, at Landlord's option, to
constitute an incurable Default, if Landlord has given Tenant notice of each
such failure within ten (10) days after each such failure occurs. The notice and
cure periods provided herein are in lieu of, and not in addition to, any notice
and cure periods provided by Law.
(B) REMEDIES. If a Default occurs and is not cured within any
applicable time permitted under Paragraph (A), Landlord shall have the rights
and remedies hereinafter set forth, which shall be distinct, separate and
cumulative with and in addition to any other right or remedy allowed under any
Law or, other provisions of this Lease:
(i) Landlord may terminate this Lease, in which event the Term of this
Lease shall end, and repossess the Premises by detainer suit, summary
proceedings or other lawful means, and recover from Tenant all the fixed dollar
amounts of Rent accrued and unpaid for the period up to and including such
termination date, as well as all other additional sums payable by Tenant, or for
which Tenant is liable or in respect of which Tenant has agreed to indemnify
Landlord under any of the provisions of this Lease, which may be then owing or
unpaid, and all costs and expenses, including without limitation court costs and
reasonable attorney's fees incurred by Landlord in the enforcement of its rights
and remedies hereunder, and, in addition, Landlord shall be entitled to recover
as damages for loss of the bargain and not as a penalty (a) the unamortized cost
(assuming level amortization at 10% interest over the Term) of leasehold
improvements, additions, and alterations, if any, made by or paid for by
Landlord and/or construction allowance made pursuant to this Lease and the
Workletter, (b) the aggregate sum which at the time of such termination
represents the excess, if any, of the present value of the aggregate rents at
the same annual rate for the remainder of the Term pursuant to the applicable
provisions of Article 2 and
18
<PAGE> 22
Article 3 of this Lease, over the then present value of the then aggregate fair
rental value of the Premises for the balance of the Term (taking into account
any period required to re-lease the Premises and prepare the Premises for
occupancy for a new tenant), such present value to be computed in each case on
the basis of a six percent (6%) per annum discount from the respective dates
upon which such rentals would have been payable hereunder had this Lease not
been terminated, and (c) any damages in addition thereto, including the Costs of
Re-letting (as defined below), reasonable attorneys' fees and court costs, which
Landlord shall have sustained by reason of the breach of any of the covenants of
this lease other than for the payment of rent. For purposes of computing such
damages, Tenant's Prorata Share of Taxes and Operating Expenses shall be
projected, based upon the average rate of increase, if any in such items from
the Commencement Date through the time of termination.
(ii) If applicable Law permits, Landlord may terminate Tenant's right
of possession and repossess the Premises by detainer suit, summary proceedings
or other lawful means, without terminating this Lease (and if such Law permits,
and Landlord shall not have expressly terminated the Lease in writing, any
termination shall be deemed a termination of Tenant's right of possession only).
In such event, Landlord may recover: (a) any unpaid Rent as of the date
possession is terminated, including interest at the Default Rate, (b) any unpaid
Rent which accrues during the Term from the date possession is terminated
through the stated end of the Term, including interest at the Default Rate, less
any Net Re-Letting Proceeds (as defined in Paragraph F) received by Landlord
during such period, and less such loss of Rent that Tenant proves could have
been reasonably avoided, and (c) any other amounts necessary to compensate
Landlord for all damages proximately caused by Tenant's failure to perform its
obligations under this Lease, including without limitation, all Costs of
Reletting (as defined in Paragraph G). Landlord may bring suits for such amounts
or portions thereof, at any time or times as the same accrue or after the same
have accrued, and no suit or recovery of any portion due hereunder shall be
deemed a waiver of Landlord's right to collect all amounts to which Landlord is
entitled hereunder, nor shall the same serve as any defense to any subsequent
suit brought for any amount not theretofore reduced to judgment.
(iii) Remove from the Premises any furniture, fixtures, equipment or
personal property of Tenant, without liability for trespass or conversion, and
store such items either in the Building or elsewhere at the sole cost of Tenant
and without liability to Landlord. Landlord may retain control over all such
property for the purpose of foreclosing the security interest created by Article
37 hereof. Any of such furniture, fixtures, equipment and personal property not
claimed within thirty (30) days from the date of removal shall be deemed
abandoned.
(C) MITIGATION OF DAMAGES. If Landlord terminates this Lease or
Tenant's right to possession, Landlord shall use reasonable efforts to mitigate
Landlord's damages, and Tenant shall be entitled to submit proof of such failure
to mitigate as a defense to Landlord's claims hereunder, if mitigation of
damages by Landlord is required by applicable Law; provided, however, Landlord
shall not be required to accept any tenant offered by Tenant or to observe any
instructions given by Tenant relative to such reletting. Landlord may give
priority over leasing the Premises to any other space Landlord desires to lease
in the Building and shall not be required in any case to offer rent, length of
terms or other terms for the Premises which are or would be less favorable to
Landlord than being offered for comparable space of Landlord in the Building. If
Landlord has not terminated this Lease or Tenant's right to possession, Landlord
shall have no obligation to mitigate, and may permit the Premises to remain
vacant or abandoned; in such case, Tenant may seek to mitigate damages by
attempting to sublease the Premises or assign this Lease (subject to Article
21).
(D) SPECIFIC PERFORMANCE, COLLECTION OF RENT AND ACCELERATION. Landlord
shall at all times have the rights and remedies (which shall be cumulative with
each other and cumulative and in addition to those rights and remedies available
under Paragraph (B), above or any Law or other provision of this Lease), without
prior demand or notice except as required by applicable Law: (i) to seek any
declaratory, injunctive or other equitable relief, and specifically enforce this
Lease, or restrain or enjoin a violation or breach of any provision hereof, and
(ii) to sue for and collect any unpaid Rent which has accrued. Notwithstanding
anything to the contrary contained in this Lease, to the extent not expressly
prohibited by applicable Law, in the event of any Default by Tenant not cured
within any applicable time for cure hereunder, Landlord may terminate this Lease
or Tenant's right to possession and accelerate and declare that all Rent
reserved for the remainder of the Term shall be immediately due and payable (in
which event, Tenant's Prorata Share of Taxes and Operating Expenses for the
remainder of the Term shall be projected based upon, the average rate of
increase, if any, in such items from the Commencement Date through
19
<PAGE> 23
the date of such declarations) provided, Landlord shall, after receiving payment
of the same from Tenant, be obligated to turn over to Tenant any actual Net
Re-Letting Proceeds thereafter received during the remainder of the Term, up to
the amount so received from Tenant pursuant to this provision.
(E) WAIVER OF NOTICE. Tenant expressly waives the service of any notice
of intention to terminate this Lease or to reenter the Premises and waives the
service of any demand for payment of Rent or for possession and waives the
service of any and every other notice or demand prescribed by any ordinance,
statute or other law (except as expressly otherwise provided in this Lease) and
agrees that the breach of any covenants or agreements provided in this Lease
shall, in and of itself, without the service of any notice or demand whatever
(except as expressly otherwise provided in this Lease), constitute a forcible
detainer by Tenant of the Premises.
(F) LATE CHARGES AND INTEREST. Tenant shall pay, as additional Rent, a
service charge of One Hundred Dollars ($100.00) for bookkeeping and
administrative expenses, if Rent is not received within five (5) days after its
due date. In addition, any Rent paid more than five (5) days after due shall
accrue interest from the due date at the Default Rate (as defined in Article
25), until payment is received by Landlord. Landlord's acceptance of such
service charge and interest payments shall not be deemed consent by Landlord to
late payments, nor a waiver of Landlord's right to insist upon timely payments
at any time, nor a waiver of any remedies to which Landlord is entitled as a
result of the late payment of Rent.
(G) CERTAIN DEFINITIONS. "Net Re-Letting Proceeds" shall mean the total
amount of rent and other consideration paid by any Replacement Tenants, less all
Costs of Re-Letting, during a given period of time. "Costs of Re-Letting" shall
include without limitation, all reasonable costs and expenses incurred by
Landlord for any repairs, maintenance, changes, alterations and improvements to
the Premises, brokerage commissions, advertising costs, attorneys' fees, any
customary free rent periods or credits, tenant improvement allowances, take-over
lease obligations and other customary, necessary or appropriate economic
incentives required to enter leases with Replacement Tenants, and costs of
collecting rent from Replacement Tenants. "Replacement Tenants" shall mean any
Persons (as defined in Article 25) to whom Landlord relets the Premises or any
portion thereof pursuant to this Article.
(H) OTHER MATTERS. No re-entry or repossession, repairs, changes,
alterations and additions, reletting, acceptance of keys from Tenant, or any
other action or omission by Landlord shall be construed as an election by
Landlord to terminate this Lease or Tenant's right to possession, or accept a
surrender of the Premises, nor shall the same operate to release the Tenant in
whole or in part from any of Tenant's obligations hereunder, unless express
written notice of such intention is sent by Landlord or its agent to Tenant. To
the fullest extent permitted by Law, all rent and other consideration paid by
any Replacement Tenants shall be applied: first, to the Costs of Re-Letting,
second, to the payment of any Rent theretofore accrued, and the residue, if any,
shall be held by Landlord and applied to the payment of other obligations of
Tenant to Landlord as the same become due (with any remaining residue to be
retained by Landlord). Rent shall be paid without any prior demand or notice
therefor (except as expressly provided herein) and without any deduction,
set-off or counterclaim, or relief from any valuation or appraisement laws.
Landlord may apply payments received from Tenant to any obligations of Tenant
then accrued, without regard to such obligations as may be designated by Tenant.
Landlord shall be under no obligation to observe or perform any provision of
this Lease on its part to be observed or performed which accrues after the date
of any Default by Tenant hereunder not cured within the times permitted
hereunder. The times set forth herein for the curing of Defaults by Tenant are
of the essence of this Lease. Tenant hereby irrevocably waives any right
otherwise available under any Law to redeem or reinstate this Lease.
ARTICLE 24
LANDLORD'S RIGHT TO CURE
If Landlord shall fail to perform any term or provision under this
Lease required to be performed by Landlord, Landlord shall not be deemed to be
in default hereunder nor subject to any claims for damages of any kind, unless
such failure shall have continued for a period of thirty (30) days after written
notice thereof by Tenant to Landlord and to each Mortgagee whose name and
address have been furnished to Tenant; provided, however, if the nature of
Landlord's failure
20
<PAGE> 24
is such that more than thirty (30) days are reasonably required in order to cure
such failure, Landlord shall not be in default if Landlord or such Mortgagee
commences to cure such failure within such thirty (30) day period, and
thereafter reasonably seeks to cure such failure to completion. The
aforementioned periods of time permitted for Landlord or such Mortgagee to cure
shall be extended for any period of time during which Landlord is delayed in, or
prevented from, curing due to fire or other casualty, strikes, lock-outs or
other labor troubles, shortages of equipment or materials, governmental
requirements, power shortages or outages, acts or omissions by Tenant or other
Persons, and other causes beyond Landlord's reasonable control. If Landlord
shall fail to cure within the times permitted for cure herein, Landlord shall be
subject to such remedies as may be available to Tenant including Tenant's right
to terminate this Lease (subject to the other provisions of this Lease);
provided, in recognition that Landlord must receive timely payments of Rent and
operate the Property, Tenant shall have no right of self-help to perform repairs
or any other obligation of Landlord, and shall have no right to withhold,
set-off, or abate Rent. In no event shall Tenant claim that a constructive or
actual eviction has occurred under this Lease or that the Premises have become
unsuitable, prior to the expiration of the notice and cure periods provided
under this Article 24. Any notice of a failure to perform by Landlord shall be
sent to Landlord at the addresses and to the attention of the parties set forth
in Article 33 hereof. Any notice of a failure to perform by Landlord not sent to
Landlord and to each Mortgagee who is entitled to notice or not sent in
compliance with Article 33 hereof shall be of no force or effect. Tenant hereby
agrees and confirms that Tenant's covenant to pay Rent is independent of and not
conditioned upon any other covenants in this Lease.
ARTICLE 25
CAPTIONS, DEFINITIONS AND SEVERABILITY
The captions of the Articles and Paragraphs of this Lease are for
convenience of reference only and shall not be considered or referred to in
resolving questions of interpretation. If any term or provision of this Lease
shall be found invalid, void, illegal, or unenforceable with respect to any
particular Person by a court of competent jurisdiction, it shall not affect,
impair or invalidate any other terms or provisions hereof, or its enforceability
with respect to any other Person, the parties hereto agreeing that they would
have entered into the remaining portion of this Lease notwithstanding the
omission of the portion or portions adjudged invalid, void, illegal, or
unenforceable with respect to such Person.
(A) "Building" shall mean the structure identified in Article I of this
Lease.
(B) Intentionally Deleted.
(C) "Default Rate" shall mean the annual rate of three percent (3%) in
excess of the prime rate of interest announced or published from time to time by
The Wall Street Journal as such rate, changing as and when said prime rate
changes. In the event The Wall Street Journal published more than one prime rate
of interest, the prime rate is defined to mean the higher prime rate of interest
published from time to time by The Wall Street Journal as such rate. In the
event The Wall Street Journal, during the term hereof, shall abolish or abandon
the practice of publishing a prime rate, or should the same become
unascertainable, Landlord shall designate a comparable reference rate which
shall be deemed to be the prime rate for purposes hereof. If for any reason the
accrual of interest at the prime rate is unascertainable, is voided by a court
of competent jurisdiction or for any reason such court finds the interest rate
is different than the rate designated by Landlord, then the "default rate" shall
be deemed to mean the highest rate permitted by law. Notwithstanding anything to
the contrary herein, the default rate shall not exceed the lawful maximum rate
of interest permitted to be paid.
(D) "Holidays" shall mean all federally observed holidays, including
New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day,
Veterans' Day, Thanksgiving Day, Christmas Day, and to the extent of utilities
or services provided by union members engaged at the Property, such other
holidays observed by such unions.
(E) "Landlord" and "Tenant" shall be applicable to one or more Persons
as the case may be, and the singular shall include the plural, and the neuter
shall include the masculine and feminine, and if there be more than one, the
obligations thereof shall be joint and several. For purposes of any provisions
indemnifying or limiting the liability of Landlord, the term "Landlord"
21
<PAGE> 25
shall include Landlord's present and future partners, beneficiaries, trustees,
officers, directors, employees, shareholders, principals, agents, affiliates,
successors and assigns.
(F) "Law" shall mean all federal, state, county and local governmental
and municipal laws, statutes, ordinances, rules, regulations, codes, decrees,
orders and other such requirements, applicable equitable remedies and decisions
by courts in cases where such decisions are considered binding precedents in the
state in which the Property is located, and decisions of federal courts applying
the Laws of such State.
(G) "Operating Expenses" shall mean all expenses, costs and amounts
(other than Taxes) of every kind and nature which Landlord shall incur or pay
during, or is allocable to, any calendar year any portion of which occurs during
the Term, because of or in connection with the ownership, management, repair,
maintenance, restoration and operation of the Property, including without
limitation, any amounts paid for: (a) utilities for the Property, including, but
not limited to, electricity, power, gas, steam, oil or other fuel, water, sewer,
lighting, heating, air conditioning and ventilating, (b) permits, licenses and
certificates necessary to operate, manage and lease the Property, (c) insurance
costs applicable to the Property, including, but not limited to, the amount of
coverage Landlord may be required to provide under this Lease, and insurance
deductibles, (d) supplies, tools, equipment and materials used in the operation,
repair and maintenance of the Property, (e) accounting, legal, inspection,
consulting, concierge and other services, (f) any equipment rental (or
installment equipment purchase or equipment financing agreements), or management
agreements (including the cost of any management fee actually paid thereunder
and the fair rental value of any office space provided thereunder, up to
customary and reasonable amounts), (g) wages, salaries and other compensation
and benefits (including the fair value of any parking privileges provided) for
all persons engaged in the operation, maintenance or security of the Property,
and employer's Social Security taxes, unemployment taxes or insurance, and any
other taxes which may be levied on such wages, salaries, compensation and
benefits, (h) payments under any easement, operating agreement, tunnel
agreement, declaration, restrictive covenant, or instrument pertaining to the
sharing of costs in any planned development, (i) operation, repair, and
maintenance of all Systems and Equipment and components thereof (including
replacement of components), janitorial service, alarm and security service,
window cleaning, trash removal, elevator maintenance, cleaning of walks, parking
facilities and building walls, removal of ice and snow, replacement of wall and
floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and
other common or public areas or facilities, maintenance and replacement of
shrubs, trees, grass, sod and other landscaped items, irrigation systems,
drainage facilities, fences, curbs, and walkways, and roof repairs, and (j) the
cost of any imputed rental value for, as well as the cost of maintaining and
operating, conference rooms and related common facilities in the Building (but
only to the extent the costs thereof exceed any revenues generated by the use of
such facilities). If the Property is not fully occupied during all or a portion
of any calendar year, Landlord may, in accordance with sound accounting and
management practices, determine the amount of variable Operating Expenses (i.e.
those items which vary according to occupancy levels) that would have been paid
had the Property been fully occupied, and the amount so determined shall be
included as Operating Expenses for such year. Notwithstanding the foregoing,
Operating Expenses shall not, however, include:
(i) depreciation, interest and amortization on
Mortgages, and other debt costs or ground lease payments, if
any, legal fees in connection with leasing, tenant disputes or
enforcement of leases; real estate brokers leasing
commissions; improvements or alterations to tenant spaces; the
cost of providing any service directly to and paid directly
by, any tenant; any costs expressly excluded from Operating
Expenses elsewhere in this Lease: costs of any items to the
extent Landlord receives reimbursement from insurance proceeds
or from a third party (such proceeds to be deducted from
Operating Expenses in the year in which received); and the
costs of complying with governmental requirements relating to
hazardous materials or ambient air standards; and
(ii) capital expenditures, except those: (a) made
primarily to reduce Operating Expenses, or to comply with any
Laws or other governmental requirements, or which are intended
to enhance the safety of the Building or its occupants, or (b)
for replacements (as opposed to additions or new improvements)
of nonstructural items located in the common areas of the
Property required to keep such areas in good condition;
provided, all such permitted capital expenditures (together
with financing charges and interest) shall be amortized for
purposes of this Lease over the shorter of: (1) their useful
lives, (2) the period
22
<PAGE> 26
during which the reasonably estimated savings in Operating
Expenses equals the expenditures, or (3) five (5) years.
(H) Intentionally Deleted.
(I) Intentionally Deleted.
(J) "Person" shall mean an individual, trust, partnership, limited
liability company, joint venture, association, corporation and any other entity.
(K) "Property" shall mean the Building, and any common or public areas
or facilities, easements, corridors, lobbies, sidewalks, loading areas,
driveways, landscaped areas, skywalks, and any and all other structures or
facilities operated or maintained in connection with or for the benefit of the
Building, and all parcels or tracts of land on which all or any portion of the
Building or any of the other foregoing items are located, and any fixtures,
machinery, equipment, apparatus, Systems and Equipment, furniture and other
personal property located thereon or therein and used in connection therewith,
whether title is held by Landlord or its affiliates. Possession of areas
necessary for utilities, services, safety and operation of the Property,
including the Systems and Equipment (as defined in Article 25), fire stairways,
perimeter walls, space between the finished ceiling of the Premises and the slab
of the floor or roof of the Property thereabove, and the use thereof together
with the right to install, maintain, operate, repair and replace the Systems and
Equipment, including any of the same in, through, under or above the Premises in
locations that will not materially interfere with Tenant's use of the Premises,
are hereby excepted and reserved by Landlord, and not demised to Tenant.
(L) "Rent" shall have the meaning specified therefor in Article 3(F).
(M) "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life/safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment for
the Property.
(N) "Taxes" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary (including,
without limitation, real estate taxes, general and special assessments, transit
taxes, water and sewer rents, taxes based upon the receipt of rent including
gross receipts or sales taxes applicable to the receipt of rent or service or
value added taxes (unless required to be paid by Tenant under Article 17),
personal property taxes imposed upon the fixtures, machinery, equipment,
apparatus, Systems and Equipment, appurtenances, furniture and other personal
property used in connection with the Property) which Landlord shall pay during
any calendar year, any portion of which occurs during the Term (without regard
to any different fiscal year used by such government or municipal authority)
because of or in connection with the ownership, leasing and operation of the
Property. Notwithstanding the foregoing, there shall be excluded from Taxes all
excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, state, and federal, and local
income taxes (as opposed to tax on rents, receipts or income attributable to
operations at the Property) and any fines, penalties or interest resulting from
the late or partial payment except for fines, penalties or interest related to
the Tax Appeal process. If the method of taxation of real estate prevailing at
the time of execution hereof shall be, or has been altered, so as to cause the
whole or any part of the taxes now, hereafter or heretofore levied, assessed or
imposed on real estate to be levied, assessed or imposed on Landlord, wholly or
partially, as a capital levy or otherwise, or on or measured by the rents
received therefrom, then such new or altered taxes attributable to the Property
shall be included within the term "Taxes", except that the same shall not
include any enhancement of said tax attributable to other income of Landlord.
Any expenses incurred by Landlord in attempting to protest, reduce or minimize
Taxes shall be included in Taxes in the calendar year such expenses are paid.
Tax refunds shall be deducted from Taxes in the year they are received by
Landlord, but if such refund shall relate to Taxes paid in a prior year of the
Term, and the Lease shall have expired, Landlord shall mail Tenant's Prorata
Share of such net refund (after deducting expenses and attorneys' fees), up to
the amount Tenant paid towards
23
<PAGE> 27
Taxes during such year, to Tenant's last known address. If Taxes for any period
during the Term or any extension thereof, shall be increased after payment
thereof by Landlord, for any reason, including without limitation, error or
reassessment by applicable governmental or municipal authorities, Tenant shall
pay Landlord upon demand Tenant's Prorata Share of such increased Taxes. Tenant
shall pay increased Taxes whether Taxes are increased as a result of increases
in the assessment or valuation of the Property (whether based on a sale, change
in ownership or refinancing of the Property or otherwise), increases in the tax
rates, reduction or elimination of any rollbacks or other deductions available
under current law, scheduled reductions of any tax abatement, as a result of the
elimination, invalidity or withdrawal of any tax abatement, or for any other
cause whatsoever. Notwithstanding the foregoing, if any Taxes shall be paid
based on assessments or bills by a governmental or municipal authority using a
fiscal year other than a calendar year, Landlord may elect to average the
assessments or bills for the subject calendar year, based on the number of
months of such calendar year included in each such assessment or bill.
(O) "Tenant's Prorata Share" of Taxes and Operating Expenses shall be
the rentable area of the Premises divided by the rentable area of the Property
on the last day of the calendar year for which Taxes or Operating Expenses are
being determined, excluding any parking facilities. Tenant acknowledges that the
"rentable area of the Premises" under this Lease includes the usable area,
without deduction for columns or projections, multiplied by a load or conversion
factor, to reflect a share of certain areas, which may include lobbies,
corridors, mechanical, utility, janitorial, boiler and service rooms and
closets, restrooms, and other public, common and service areas. The "rentable
area of the Property" shall include all rentable area of all space leased or
available for lease at the Property, which Landlord may reasonably re-determine
from time to time, to reflect re-configurations, additions or modifications to,
or changes in the use of, the Property, or any portion(s) thereof. If the
Property or any development of which it is a part, shall contain non-office
uses, Landlord shall have the right to determine in accordance with sound
accounting and management principles Tenant's Prorata Share of Taxes and
Operating Expenses for only the office portion of the Property or of such
development, in which event, Tenant's Prorata Share shall be based on the ratio
of the rentable area of the Premises to the rentable area or such office
portion. Similarly, if the Property shall contain tenants who do not participate
in all or certain categories of Taxes or Operating Expenses on a prorata basis,
Landlord may exclude the amount of Taxes or Operating Expenses or such
categories of the same, as the case may be, attributable to such tenants, and
exclude the rentable area of their premises, in computing Tenant's Prorata
Share.
24
<PAGE> 28
ARTICLE 26
CONVEYANCE BY LANDLORD AND LIABILITY
In case Landlord or any successor owner of the Property or the Building
shall convey or otherwise dispose of any portion thereof in which the Premises
are located, to another Person (and nothing herein shall be construed to
restrict or prevent such conveyance or disposition), such other Person shall
thereupon be and become landlord hereunder and shall be deemed to have fully
assumed and be liable for all obligations of this Lease to be performed by
Landlord which first arise after the date of conveyance, including the return of
any Security Deposit and Tenant shall attorn to such other Person, and Landlord
or such successor owner shall, from and after the date of conveyance, be free of
all liabilities and obligations hereunder not then incurred. Landlord shall use
its best efforts to obtain from such successor in interest written recognition
of Tenant's rights under this Lease. The liability of Landlord to Tenant for any
default by Landlord under this Lease or arising in connection herewith or with
Landlord's operation, management, leasing, repair, renovation, alteration, or
any other matter relating to the Property or the Premises, shall be limited to
the interest of Landlord in the Property. Tenant agrees to look solely to
Landlord's interest in the Property for the recovery of any judgment against
Landlord, and neither Landlord nor Landlord's beneficiary shall be personally
liable for any such judgment or deficiency after execution thereon, regardless
of whether or not any portion of Landlord's duties under this Lease are
undertaken by, or on the behalf of Landlord's beneficiary. The limitations of
liability contained in this Article shall apply equally and inure to the benefit
of the respective present and future members, managers, partners, beneficiaries,
officers, directors, trustees, shareholders, agents and employees, of Landlord
and Landlord's beneficiary, and their respective partners, heirs, successors and
assigns. Under no circumstances shall any present or future director or officer
of Landlord or Landlord's beneficiary (if Landlord or Landlord's beneficiary is
a corporation) or general or limited partner of Landlord or Landlord's
beneficiary (if Landlord or Landlord's beneficiary is a partnership), or present
or future manager or member of Landlord or Landlord's beneficiary (if Landlord
or Landlord's beneficiary is a limited liability company) have any liability for
the performance of Landlord's obligations under this Lease, and notwithstanding
that, if Landlord is a trustee of a land trust, Landlord's beneficiary elects to
perform any of Landlord's obligations under this Lease.
ARTICLE 27
WAIVER AND INDEMNIFICATION
(a) To the extent not expressly prohibited by law, Tenant hereby
releases Landlord from, and waives all claims for, damages to persons or
property sustained by Tenant or by any occupant of the Premises or the Building,
or by any other person, resulting directly or indirectly from fire or other
casualty, or any existing or future condition, defect, matter or thing in the
Premises, the Building or any part thereof, or from any equipment or
appurtenance therein, or from any accident in or about the Building, or from any
act or neglect of any tenant or other occupant of the Building or of any other
person (including but not limited to any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building) unless caused by the gross
negligence or willful misconduct of Landlord, its agents, employees or
contractors.
(b) Except to the extent arising from the negligent acts of Landlord or
Tenant or Landlord's or Tenant's agents or employees, each party shall defend,
indemnify and hold harmless the other party from and against any and all claims,
demands, liabilities, damages, judgments, orders, decrees, actions, proceedings,
fines, penalties, costs and expenses, including without limitation, court costs
and attorneys' fees arising from or relating to any loss of life, damage or
injury to person, property or business occurring in or from the Premises, or
caused by or in connection with any violation of this Lease or use of the
Premises or Property by, or any other act or omission of, either party, any
other occupant of the Premises, or any of their respective agents, employees,
contractors or guests. Without limiting the generality of the foregoing, both
Tenant and Landlord specifically acknowledges that the indemnity undertaking
herein shall apply to claims in connection with or arising out of any
"Alterations" as described in Article 8, the installation, maintenance, use or
removal of any "Lines" located in or serving the Premises as described in
Article 29, and the transportation, use, storage, maintenance, generation,
manufacturing, handling, disposal, release or discharge of any "Hazardous
Material" as described in Article 30 (whether or not any of such matters shall
have been theretofore approved by Landlord), except to the extent that any of
the same arises from the intentional or grossly negligent acts of Landlord or
Tenant or Landlord's or Tenant's agents or employees. The
25
<PAGE> 29
terms and provisions of this Article 27 shall survive the expiration or earlier
termination of this Lease.
(c) For purposes of this Article 27 only, "Landlord" shall include
Landlord, Landlord's agent, or any other Building manager, all Mortgagees, and
their respective agents, servants, shareholders, contractors, managers, members,
directors, officers, partners and employees.
ARTICLE 28
SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS
The parties acknowledge that safety and security devices, services and
programs provided by Landlord, if any, while intended to deter crime and ensure
safety, may not in given instances prevent theft or other criminal acts, or
ensure safety of persons or property. The risk that any safety or security
device, service or program may not be effective, or may malfunction, or be
circumvented by a criminal, is assumed by Tenant with respect to Tenant's
property and interests, and Tenant shall obtain insurance coverage to the extent
Tenant desires protection against such criminal acts and other losses, as
further described in Article 11. Tenant agrees to cooperate in any reasonable
safety or security program developed by Landlord or required by Law.
ARTICLE 29
COMMUNICATIONS AND COMPUTER LINES
Notwithstanding anything contained herein to the contrary, Tenant may
install, maintain, replace, remove or use any communications or computer wires,
cables and related devices (collectively the "Lines") at the Property in or
serving the Premises, provided: (a) Tenant shall obtain Landlord's prior written
consent, and use an experienced and qualified contractor approved by Landlord,
such approval not to be unreasonably withheld, and comply with all of the other
provisions of Article 8, (b) any such installation, maintenance, replacement,
removal or use shall comply with all Laws applicable thereto and good work
practices, and shall not interfere with the use of any then existing Lines at
the Property, (c) an acceptable number of spare Lines and space for additional
Lines shall be maintained for existing and future occupants of the Property, as
determined in Landlord's reasonable opinion, (d) if Tenant at any time uses any
equipment that may create an electromagnetic field exceeding the normal
insulation ratings of ordinary twisted pair riser cable or cause radiation
higher than normal background radiation, the Lines therefor (including riser
cables) shall be appropriately insulated to prevent such excessive
electromagnetic fields or radiation, (e) as a condition to permitting the
installation of new Lines, Landlord may require that Tenant remove existing
Lines located in or serving the Premises, (f) Tenant's rights shall be subject
to the rights of any regulated telephone company, and (g) Tenant shall pay all
costs in connection therewith. Landlord reserves the right to require that
Tenant remove any Lines located in or serving the Premises which are installed
in violation of these provisions, or which are at any time in violation of any
Laws or represent a dangerous or potentially dangerous condition (whether such
Lines were installed by Tenant or any other party), within three (3) days after
written notice.
Landlord may (but shall not have the obligation to): (i) install new
Lines at the Property, (ii) create additional space for Lines at the Property,
and (iii) reasonably direct, monitor and/or supervise the installation,
maintenance, replacement and removal of, the allocation and periodic
re-allocation of available space (if any) for, and the allocation of excess
capacity (if any) on, any Lines now or hereafter installed at the Property by
Landlord, Tenant or any other party (but Landlord shall have no right to monitor
or control the information transmitted through such Lines). Such rights shall
not be in limitation of other rights that may be available to Landlord by Law or
otherwise. If Landlord exercises any such rights, Landlord may charge Tenant for
the costs attributable to Tenant, or may include those costs and all other costs
in Operating Expenses under Article 25 (including without limitation, costs for
acquiring and installing Lines and risers to accommodate new Lines and spare
Lines, any associated computerized system and software for maintaining records
of Line connections, and the fees of any consulting engineers and other
experts); provided, any capital expenditures included in Operating Expenses
hereunder shall be amortized (together with reasonable finance charges) over the
period of time prescribed by Article 25.
26
<PAGE> 30
Notwithstanding anything to the contrary contained in Article 13,
Landlord reserves the right to require that Tenant remove any or all Lines
installed by or for Tenant within or serving the Premises upon termination of
this Lease, provided Landlord notifies Tenant prior to or within thirty (30)
days following such termination. Any Lines not required to be removed pursuant
to this Article shall, at Landlord's option, become the property of Landlord
(without payment by Landlord). If Tenant fails to remove such Lines as required
by Landlord, or violates any other provision of this Article, Landlord may,
after twenty (20) days written notice to Tenant, remove such Lines or remedy
such other violation, at Tenant's expense (without limiting Landlord's other
remedies available under this Lease or applicable Law). Tenant shall not,
without the prior written consent of Landlord in each instance, grant to any
third party a security interest or lien in or on the Lines, and any such
security interest or lien granted without Landlord's written consent shall be
null and void. Except to the extent arising from the intentional or negligent
acts of Landlord or Landlord's agents or employees, Landlord shall have no
liability for damages arising from, and Landlord does not warrant that the
Tenant's use of any Lines will be free from the following (collectively called
"Line Problems"): (x) any eavesdropping or wire-tapping by unauthorized parties,
(y) any failure of any Lines to satisfy Tenant's requirements, or (z) any
shortages, failures, variations, interruptions, disconnections, loss or damage
caused by the installation, maintenance, replacement, use or removal of Lines by
or for other tenants or occupants at the Property, by any failure of the
environmental conditions or the power supply for the Property to conform to any
requirements for the Lines or any associated equipment, or any other problems
associated with any Lines by any other cause. Under no circumstances shall any
Line Problems be deemed an actual or constructive eviction of Tenant, render
Landlord liable to Tenant for abatement of Rent, or relieve Tenant from
performance of Tenant's obligations under this Lease, unless same is caused by
the gross negligence or willful misconduct of Landlord. Landlord in no event
shall be liable for damages by reason of loss of profits, business interruption
or other consequential damage arising from any Line Problems, unless same is
caused by the gross negligence or willful misconduct of Landlord.
ARTICLE 30
HAZARDOUS MATERIALS
Tenant shall not transport, use, store, maintain, generate,
manufacture, handle, dispose, release or discharge any "Hazardous Material" (as
defined below) upon or about the Property, nor permit Tenant's employees,
agents, contractors, and other occupants of the Premises to engage in such
activities upon or about the Property. However, the foregoing provisions shall
not prohibit the transportation to and from, and use, storage, maintenance and
handling within, the Premises of substances customarily used in offices (or such
other business or activity expressly permitted to be undertaken in the Premises
under Article 6), provided: (a) such substances shall be used and maintained
only in such quantities as are reasonably necessary for such permitted use of
the Premises, strictly in accordance with applicable Law and the manufacturers'
instructions therefor, (b) such substances shall not be disposed of, released or
discharged on the Property, and shall be transported to and from the Premises in
compliance with all applicable Laws, and as Landlord shall reasonably require,
(c) if any applicable Law or Landlord's trash removal contractor requires that
any such substances be disposed of separately from ordinary trash, Tenant shall
make arrangements at Tenant's expense for such disposal directly with a
qualified and licensed disposal company at a lawful disposal site (subject to
scheduling and approval by Landlord), and shall ensure that disposal occurs
frequently enough to prevent unnecessary storage of such substances in the
Premises, and (d) any remaining such substances shall be completely, properly
and lawfully removed from the Property upon expiration or earlier termination of
this Lease.
Tenant shall promptly notify Landlord of: (i) any enforcement, cleanup
or other regulatory action taken or threatened by any governmental or regulatory
authority with respect to the presence of any Hazardous Material on the Premises
or the migration thereof from or to other property, (ii) any demands or claims
made or threatened by any party against Tenant or the Premises relating to any
loss or injury resulting from any Hazardous Material, (iii) any release,
discharge or nonroutine, improper or unlawful disposal or transportation of any
Hazardous Material on or from the Premises, and (iv) any matters where Tenant is
required by Law to give a notice to any governmental or regulatory authority
respecting any Hazardous Materials on the Premises. Landlord shall have the
right (but not the obligation) to join and participate, as a party, in any legal
proceedings or actions affecting the Premises initiated in connection with any
environmental, health or safety Law. At such times as Landlord may reasonably
request, Tenant shall provide Landlord with a written list identifying any
Hazardous Material then used, stored, or maintained upon the Premises, the use
and approximate quantity of each such material, a copy of any material safety
data sheet ("MSDS") issued by the manufacturer therefor, written information
27
<PAGE> 31
concerning the removal, transportation and disposal of the same, and such other
information as Landlord may reasonably require or as may be required by Law. The
term "Hazardous Material" for purposes hereof shall mean any chemical,
substance, material or waste or component thereof which is now or hereafter
listed, defined or regulated as a hazardous or toxic chemical, substance,
material or waste or component thereof by any federal, state or local governing
or regulatory body having jurisdiction, or which would trigger any employee or
community "right-to-know" requirements adopted by any such body, or for which
any such body has adopted any requirements for the preparation or distribution
of an MSDS.
If any Hazardous Material is released, discharged or disposed of by
Tenant or any other occupant of the Premises, or their employees, agents or
contractors, on or about the Property in violation of the foregoing provisions,
Tenant shall immediately, properly and in compliance with applicable Laws clean
up and remove the Hazardous Material from the Property and any other affected
property and clean or replace any affected personal property (whether or not
owned by Landlord), at Tenant's expense. Such clean up and removal work shall be
subject to Landlord's prior written approval except in emergencies), and shall
include, without limitation, any testing, investigation, and the preparation and
implementation of any remedial action plan required by any governmental body
having jurisdiction or reasonably required by Landlord. If Tenant shall fail to
comply with the provisions of this Article within five (5) days after written
notice by Landlord, or such shorter time as may be required by Law or in order
to minimize any hazard to Persons or property, Landlord may (but shall not be
obligated to) arrange for such compliance directly or as Tenant's agent through
contractors or other parties selected by Landlord, at Tenant's expense (without
limiting Landlord's other remedies under this Lease or applicable Law). If any
Hazardous Material is released, discharged or disposed of on or about the
Property and such release, discharge or disposal is not caused by Tenant or
other occupants of the Premises, or their employees, agents or contractors. In
the event Tenant discovers Hazardous Materials in the Premises during its
initial construction of the Premises, not brought on by Tenant, Tenant shall
notify Landlord and Landlord shall perform any such corrective actions necessary
and required by law as quickly as is reasonably possible under the circumstances
and restore the Premises to the condition existing immediately prior to the
performance of such corrective actions. Upon the discovery of Hazardous
Materials, not placed thereon by Tenant, Tenant shall have the option of
terminating this Lease, only if Landlord fails to take necessary corrective
action within a six-month period. In the event the discovery of Hazardous
Materials shall occur during the term of this Lease and they are not brought on
or cause by Tenant, Tenant shall receive an abatement of all rents and charges
hereunder if Tenant is precluded from doing business in the Premises during any
necessary required corrective action (including restoration of the Leased
Premises) by the Landlord, which Landlord shall perform and complete as
expeditiously as is reasonably possible. In addition Landlord shall restore, at
its cost, any damage to the Premises to its condition originally preceding the
corrective action. In the event Landlord elects not to take such corrective
actions pursuant to this Section or fails to do so within sixty (60) days notice
to Landlord of the existence of Hazardous Materials on the Premises, then
Tenant, as its sole remedy hereunder, may terminate the Lease.
ARTICLE 31
MISCELLANEOUS
(A) Each of the terms and provisions of this Lease shall be binding
upon and inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, guardians, custodians, successors and assigns,
subject to the provisions of Article 21 respecting Transfers.
(B) This Lease shall not be recorded. In the event Landlord or Tenant
requests recording, the parties agree to execute, acknowledge and deliver a
memorandum of lease in recordable form.
(C) This Lease shall be construed in accordance with the Laws of the
state in which the Property is located.
(D) All obligations or rights of either party arising during or
attributable to the period ending upon expiration or earlier termination of this
Lease shall survive such expiration or earlier termination.
28
<PAGE> 32
(E) Landlord agrees that, if Tenant timely pays the Rent and performs
the terms and provisions hereunder, and subject to all other terms and
provisions of this Lease, Tenant shall hold and enjoy the Premises during the
Term, free of lawful claims by any Person acting by or through Landlord.
(F) This Lease does not grant any legal rights to "light and air"
outside the Premises nor any particular view or cityscape visible from the
Premises. Landlord specifically excepts and reserves to itself the use of any
roofs, the exterior portions of the Premises, all rights to and the land and
improvements below the improved floor level of the Premises, to the improvements
and air rights above the Premises, to the improvements and air rights located
outside the demising walls of the Premises and to such areas within the Premises
required for installation of utility lines and other installations required to
serve any occupants of the Building and to maintain and repair same, and no
rights with respect thereto are conferred upon Tenant, unless otherwise
specifically provided herein.
(G) If the Commencement Date is delayed in accordance with Article 4
for more than one year, either Tenant or Landlord may declare this Lease null
and void, and if the Commencement Date is so delayed for more than seven years,
this Lease shall thereupon become null and void without further action by either
party.
(H) Time is of the essence of this Lease and all provisions herein
relating thereto shall be strictly construed.
(I) Neither Landlord nor Tenant shall not be deemed in default with
respect to any of the terms, covenants and conditions of this Lease on the
party's part to be performed, if said party fails timely to perform the same and
such failure is due in whole or in part to any strike, labor trouble, failure of
power, accidents, Acts of God, acts caused directly or indirectly by the other
party (or its agents, employees, or invitees), or any other cause beyond said
party's reasonable control.
(J) The voluntary or other surrender of this Lease by Tenant or a
mutual cancellation thereof, shall not constitute a merger; and upon such
surrender or cancellation of this Lease, Landlord shall have the option, in
Landlord's sole discretion, to (a) either terminate all or any existing
subleases or subtenancies, or (b) assume Tenant's interest in any or all
subleases or subtenancies.
(K) Any and all covenants of Tenant not fully performed on the date of
the expiration of termination of this Lease shall survive such expiration or
termination.
(L) For purposes of Article 2 hereof or any other provision of this
Lease, if any sum set forth in this Lease is expressed as an amount per square
foot of rentable area or per rentable square foot, or in a similar manner, such
sum shall control over any inconsistent computation or expression of such
amount.
ARTICLE 32
OFFER
The submission and negotiation of this Lease shall not be deemed an
offer to enter the same by Landlord, but the solicitation of such an offer by
Tenant. Tenant agrees that its execution of this Lease constitutes a firm offer
to enter the same which may not be withdrawn for a period of 30 days after
delivery to Landlord (or such other period as may be expressly provided in any
other agreement signed by the parties). During such period and in reliance on
the foregoing, Landlord may, at Landlord's option (and shall, if required by
applicable Law), deposit any security deposit and Rent, and proceed with any
plans, specifications, alterations or improvements, and permit Tenant to enter
the Premises, but such acts shall not be deemed an acceptance of Tenant's offer
to enter this Lease, and such acceptance shall be evidenced only by Landlord
signing and delivering this Lease to Tenant.
29
<PAGE> 33
ARTICLE 33
NOTICES
Except as expressly provided to the contrary in this Lease, every
notice or other communication to be given by either party to the other with
respect hereto or to the Premises or Property, shall be in writing and shall not
be effective for any purpose unless the same shall be served personally or by
national air courier service, or United States certified mail, return receipt
requested, postage prepaid, addressed, if to Tenant, at the address first set
forth in the Lease, until the Commencement Date, and thereafter to the Tenant at
the Premises, and if to Landlord and Landlord's agent, addressed as follows:
Landlord: LC Tower, L.L.C.
c/o GEM Investors, Inc.
900 N. Michigan Avenue, Suite 1900
Chicago, Illinois 60611
Attention: Craig Caffarelli
Landlord's Agent: FMS, Inc.
333 Union Street, Suite 400
Nashville, Tennessee 37201
Attention: W. Kirby Davis, Jr.
With a copy to: Wyatt, Tarrant & Combs
1500 Nashville City Center
511 Union Street
Nashville, Tennessee 37219
Attention: Sam J. McAllester III
or such other address or addresses as Tenant or Landlord may from time to time
designate by notice given as above provided. Every notice or other communication
hereunder shall be deemed to have been given as of the third business day
following the date of such mailing (or as of any earlier date evidenced by a
receipt from such national air courier service or the United States Postal
Service) or immediately if personally delivered. Notices not sent in accordance
with the foregoing shall be of no force or effect until received by the
foregoing parties at such addresses required herein. In the event that Tenant
has vacated or abandoned the Premises, notice to Tenant shall be deemed given
pursuant to this Article 33 if sent to Tenant's registered agent, except that if
Tenant has no registered agent or if such registered agent does not accept
notice on behalf of Tenant, notice shall be deemed given to Tenant if sent to
the Tennessee Secretary of State, Nashville, Tennessee.
ARTICLE 34
REAL ESTATE BROKERS
Landlord and Tenant represents and warrants to the other that they have
dealt only with First Management Services (whose commission, if any, shall be
paid by Landlord pursuant to separate agreement) as broker, agent or finder in
connection with this Lease and agrees to indemnify and hold the other harmless
from all damages, judgments, liabilities and expenses (including reasonable
attorneys' fees) arising from any claims or demands of any other broker, agent
or finder with whom said party has dealt for any commission or fee alleged to be
due in connection with its participation in the procurement of said party or the
negotiation with said party of this Lease. Tenant and Landlord shall indemnify,
defend and hold harmless the other from all costs and damages, or claims for
damages, of any type on account of a breach of the foregoing representation and
warranty.
30
<PAGE> 34
ARTICLE 35
SECURITY DEPOSIT
Tenant shall deposit with Landlord the amount of $14,897.37 ("Security
Deposit"), upon Tenant's execution and submission of this Lease. At the end of
the first Lease year (April 30, 2000), the amount of the Security Deposit shall
be reduced to $5,331.28. The Security Deposit shall serve as security for the
prompt, full and faithful performance by Tenant of the terms and provisions of
this Lease. In the event that Tenant is in default hereunder and fails to cure
within any applicable time permitted under this Lease, or in the event that
Tenant owes any amounts to Landlord upon the expiration of this Lease, Landlord
may, from time to time, use or apply the whole or any part of the Security
Deposit for the payment of Tenant's obligations hereunder. The use or
application of the Security Deposit or any portion thereof shall not prevent
Landlord from exercising any other right or remedy provided hereunder or under
any Law and shall not be construed as liquidated damages. In the event the
Security Deposit is reduced by such use or application, Tenant shall deposit
with Landlord within ten (10) days after written notice, an amount sufficient to
restore the full amount of the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from Landlord's general funds or pay
interest on the Security Deposit. Any remaining portion of the Security Deposit
shall be returned to Tenant within sixty (60) days after Tenant has vacated the
Premises in accordance with Article 13. If the Premises shall be expanded at any
time, or if the Term shall be extended at an increased rate of Rent, the
Security Deposit shall thereupon be proportionately increased.
ARTICLE 36
FINANCIAL STATEMENTS
Tenant represents that it has provided Landlord with true and complete
financial statements (the "Financial Statements") setting forth the financial
condition of Tenant and of each Guarantor as of the date specified in such
statements. Upon Landlord's written request, Tenant shall furnish Landlord with
a written certification from an executive officer, manager, or partner of Tenant
and from each Guarantor describing in reasonable detail any material adverse
change in the financial condition of Tenant and/or each Guarantor (as the case
may be) from that set forth in the respective Financial Statements or stating
that there has been no such change.
ARTICLE 37
Intentionally omitted.
ARTICLE 38
ADA
The parties acknowledge that the Americans With Disabilities Act of
1990 (42 U.S.C. ss.12101 et seq.) and regulations and guidelines promulgated
thereunder, as all of the same may be amended and supplemented from time to time
(collectively referred to herein as the "ADA") establish requirements under
Title III of the ADA ("Title III") pertaining to business operations,
accessibility and barrier removal, and that such requirements may be unclear and
may or may not apply to the Premises and the Building depending on, among other
things: (1) whether Tenant's business operations are deemed a "place of public
accommodation" or a "commercial facility," (2) whether compliance with such
requirements is "readily achievable" or "technically infeasible," and (3)
whether a given alteration affects a "primary function area" or triggers
so-called "path of travel" requirements. The parties acknowledge and agree that
Tenant has been provided an opportunity to inspect the Premises and the Building
sufficient to determine whether or not the Premises and the Building in their
condition current as of the date hereof deviate in any manner from the ADA
Accessibility Guidelines ("ADAAG") or any other requirements under the ADA
pertaining to the accessibility of the Premises or the Building. Tenant further
acknowledges and agrees that except as may otherwise be specifically provided
herein, Tenant accepts the Premises and the Building in "as-is" condition and
agrees that Landlord makes no representation or warranty as to whether the
Premises or the Building conform to the requirements of the ADAAG or any other
requirements under the ADA pertaining to the accessibility of the Premises or
the Building. Tenant has prepared or reviewed the plans and specifications for
the Tenant's Work and has independently determined that such plans and
specifications are in conformance with the ADAAG and any other requirements of
the ADA. Tenant further acknowledges and agrees that to the extent that Landlord
prepared, reviewed or approved any of those plans and specifications, such
action shall in no event be deemed any representation or warranty that the same
comply with any requirements of the ADA. Notwithstanding anything to the
contrary in this Lease, the parties hereby agree to allocate responsibility for
Title III compliance as follows: (a) Tenant shall be responsible for all Title
III compliance and costs in connection with the Premises, including structural
work, if any, and including any leasehold improvements or other work to be
performed in the Premises under or in connection with this Lease, and (b)
Landlord shall perform, and Tenant shall be responsible for the cost of, any
so-called Title III "path of travel" requirements triggered by any construction
activities or alterations in the Premises. Except as set forth above with
respect to
31
<PAGE> 35
Landlord's Title III obligations, Tenant shall be solely responsible
for all other requirements under the ADA relating to the Tenant or any
affiliates or persons or entities related to the Tenant (collectively,
"Affiliates"), operations of the Tenant or Affiliates, or the Premises,
including, without limitation, requirements under Title I of the ADA pertaining
to Tenant's employees.
ARTICLE 39
LANDLORD'S CONTRIBUTION FOR WORK; PROGRESS PAYMENTS
Landlord shall provide to Tenant up to Four Thousand Six Hundred
dollars ($4,600.00) towards Tenant Improvements to the Annex Premises within
thirty (30) days of installation of its sprinkler system, fireproofing and HVAC.
Landlord shall provide for the installation of new carpet in the Tower Premises
not to exceed Twelve Thousand Eight Hundred Four dollars ($12,804.00). Landlord
and Tenant shall mutually agree to the carpet selection for the Tower Premises.
Otherwise, Tenant shall accept the Premises in "as-is" condition.
ARTICLE 40
ENTIRE AGREEMENT
This Lease, together with Rider One and Exhibits A through B (WHICH
COLLECTIVELY ARE HEREBY INCORPORATED WHERE REFERRED TO HEREIN AND MADE A PART
HEREOF AS THOUGH FULLY SET FORTH), contains all the terms and provisions between
Landlord and Tenant relating to the matters set forth herein and no prior or
contemporaneous agreement or understanding pertaining to the same shall be of
any force or effect, except any such contemporaneous agreement specifically
referring to and modifying this Lease, signed by both parties. Without
limitation as to the generality of the foregoing, Tenant hereby acknowledges and
agrees that Landlord's leasing agents and field personnel are only authorized to
show the Premises and negotiate terms and conditions for leases subject to
Landlord's final approval, and are not authorized to make any agreements,
representations, understandings or obligations, binding upon Landlord,
respecting the condition of the Premises or Property, suitability of the same
for Tenant's business, or any other matter, and no such agreements,
representations, understandings or obligations not expressly contained herein or
in such contemporaneous agreement shall be of any force or effect. Neither this
Lease, nor any Riders or Exhibits referred to above may be modified, except in
writing signed by both parties.
ARTICLE 41
LANDLORD'S AUTHORITY
Landlord represents to the best of its knowledge that: (I) Landlord is
the owner of fee simple to the Building, and (ii) Landlord has all necessary
power and authority to enter into this Lease. Landlord represents that Landlord
has not received notification from any governmental authority that the Property
is in violation of any environmental or zoning regulations.
ARTICLE 42
PARKING
During the lease term, Landlord agrees to provide Tenant with fourteen
(14) unreserved parking spaces for the Annex Premises and twenty-six (26)
unreserved parking spaces for the Tower Premises at market rates in Landlord's
Parking Garage, known as Fifth Avenue Parking Garage, provided that Landlord
continues to own and operate said garage. However, if the State of Tennessee (an
existing tenant) should require additional parking, Landlord shall have to
reduce the parking ratio of 3:1000 (3 spaces to 1,000 SF of Premises) down to
1:1,000 (1 space to 1,000 SF of Premises) and therefore Tenant's Annex Premises
would allow for five (5) unreserved parking space and Tenant's Tower Premises
would allow for nine (9) unreserved parking spaces. Unreserved is defined as
parking on the second full-floor level or higher on a first-come-first-served
basis.
32
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date first above written.
LANDLORD:
LC TOWER, L.L.C. a Delaware limited
liability company
By: PERIDOT, INC. Manager
Witness: Marija Tatich By: /s/ Craig Caffarelli
------------------------ -------------------------------
Its: Portfolio Manager Its: Vice President
------------------------ ----------------
TENANT:
BlueStar Communications,
a Tennessee Corporation
Witness: Melinda Alford BY: /s/ Fredjoseph Goldner
-------------- ------------------------------------
BY: Fredjoseph Goldner
Its: Chief Operating Officer
CERTIFICATE
(IF TENANT IS A CORPORATION)
I, R.L. Burtner, Secretary of BlueStar Communications, Inc., Tenant,
hereby certify that the officer(s) executing the foregoing Lease on behalf of
Tenant was/were duly authorized to act in his capacity as _________________
and ___________________, and his/their action(s) are the action of Tenant.
(Corporate Seal) R.L. Burtner
-----------------------------
Secretary
33
<PAGE> 37
EXHIBIT A
(FLOOR PLAN(S) SHOWING PREMISES CROSS-HATCHED)
1
<PAGE> 38
EXHIBIT B
JANITORIAL SPECIFICATIONS
Cleaning services, deemed by Landlord to be normal and usual in a first
class office building, as follows:
DAILY - OFFICES:
Empty waste baskets, replace liners as needed.
Dust all free surfaces of furniture, desks and tables.
Dust, mop or sweep all hard floors.
Vacuum all carpeted areas.
Mop tile floors as needed.
DAILY - RESTROOMS:
Clean all glass and mirrors.
Spot clean walls and partitions.
Sweep, damp mop, and sanitize hard floors.
Clean and sanitize all fixtures.
Empty all containers and dispose, insert liners as needed.
Refill all dispensers to normal limits (hand soap, hand towels, toilet tissue,
liners).
WEEKLY - OFFICES:
Clean all horizontal surfaces and sills, ledges, and moldings.
Spot clean carpet as needed.
QUARTERLY - OFFICES:
Clean window blinds.
Detail all areas as needed.
BI-ANNUALLY - OFFICES:
Clean all interior and exterior windows.
Note: Shampooing and replacement of carpet as required by Tenant shall be
Tenant's expense.
1
<PAGE> 39
EXHIBIT B-1
HVAC SPECIFICATIONS
Heating, Ventilating and Air Conditioning:
<TABLE>
<CAPTION>
Summer Design Conditions Winter Design Conditions
- ------------------------ ------------------------
<S> <C>
Outdoor Temperature: 95(Degree)F. Dry Bulb Outdoor Temperature: -10(Degree)F. Dry Bulb
Outdoor Temperature: 75(Degree)F. Wet Bulb
Indoor Temperature: 72(Degree)F. + 2(Degree)F. Indoor Temperature: 72(Degree)F. + 2 (Degree) F.
</TABLE>
All occupied spaces will be air conditioned with the exception of
toilet rooms, storage rooms, and the mechanical room.
Air conditioning systems will be designed on the basis of occupancy of
one (1) person per one hundred (100) square feet in the rentable area of the
Premises and maximum electrical lighting and receptacle load of five (5) watts
per square foot in the rentable area of the Premises.
All special HVAC requirements shall be subject to Landlord's approval.
2
<PAGE> 40
RIDER ONE
RULES
(1) On Saturdays, Sundays and Holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, or such other hours as
Landlord shall determine from time to time, access to the Property and/or to the
passageways, entrances, exits, shipping areas, halls, corridors, elevators or
stairways and other areas in the Property may be restricted and access gained by
use of a key to the outside doors of the Property, or pursuant to such
reasonable security procedures Landlord may from time to time impose. All such
areas, and all roofs, are not for use of the general public and Landlord shall
in all cases retain the right to control and prevent access thereto by any
persons whose presence in the judgment of Landlord shall be prejudicial to the
safety, character, reputation and interests of the Property and its tenants
provided, however, that nothing herein contained shall be construed to prevent
such access to persons with whom Tenant deals in the normal course of Tenant's
business unless such persons are engaged in activities which are illegal or
violate these Rules. No Tenant and no employee or invitee of Tenant shall enter
into areas reserved for the exclusive use of Landlord, its employees or
invitees. Tenant shall keep doors to corridors and lobbies closed except when
persons are entering or leaving. Landlord warrants that Tenant, its contractors,
agents, servicers and employees shall have continuing access subject to
reasonable security measures) continually, 24 hours per day, seven days per
week at no additional cost to Tenant.
(2) Tenant shall not paint, display, inscribe, maintain or affix any
sign, placard, picture, advertisement, name, notice, lettering or direction on
any part of the outside or inside of the Property, or on any part of the inside
of the Premises which can be seen from the outside of the Premises without the
prior consent of Landlord, and then only such name or names or matter and in
such color, size, style, character and material as may be first approved by
Landlord in writing. Landlord shall prescribe the suite number and
identification sign for the Premises (which shall be prepared and installed by
Landlord at Tenant's expense). Landlord reserves the right to remove at Tenant's
expense all matter not so installed or approved without notice to Tenant.
(3) Tenant shall not in any manner use the name of the Property for any
purpose other than that of the business address of the Tenant, or use any
picture or likeness of the Property, in any letterheads, envelopes, circulars,
notices, advertisements, containers or wrapping material without Landlord's
express consent in writing.
(4) Tenant shall not place anything or allow anything to be placed in
the Premises near the glass of any door, partition, wall or window which may be
unsightly from outside the Premises, and Tenant shall not place or permit to be
placed any article of any kind on any window ledge or on the exterior walls.
Blinds, shades, awnings or other forms of inside or outside window ventilators
or similar devices, shall not be placed in or about the outside windows in the
Premises except to the extent, if any, that the character, shape, color,
material and make thereof is first approved by the Landlord.
(5) Furniture, freight and other large or heavy articles, and all other
deliveries may be brought into the Property only at times and in the manner
designated by Landlord, and always at the Tenant's sole responsibility and risk.
Landlord may impose reasonable charges for use of freight elevators after or
before normal business hours. All damage done to the Property by moving or
maintaining such furniture, freight or articles shall be repaired by Landlord at
Tenant's expense. Landlord may inspect items brought into the Property or
Premises with respect to weight or dangerous nature. Landlord may require that
all furniture, equipment, cartons and similar articles removed from the Premises
or the Property be listed and a removal permit therefor first be obtained from
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances or elevators of the Property, any item normally taken, or which
Landlord otherwise reasonably requires to be taken, in or out through service
doors or on freight elevators. Tenant shall not allow anything to remain in or
obstruct in any way, any lobby, corridor, sidewalk, passageway, entrance, exit,
hall, stairway, shipping area, or other such area. Tenant shall move all
supplies, furniture and equipment as soon as received directly to the Premises,
and shall move all such items and waste (other than waste customarily removed by
Property employees) that are at any time being taken from the Premises directly
to the areas designated for disposal. Any hand-carts used at the Property shall
have rubber wheels.
1
<PAGE> 41
(6) Tenant shall not overload any floor or part thereof in the
Premises, or Property, including any public corridors or elevators therein
bringing in or removing any large or heavy articles, and Landlord may direct and
control the location of safes and all other heavy articles and require
supplementary supports at Tenant's expense of such material and dimensions as
Landlord may deem necessary to properly distribute the weight.
(7) Tenant shall not attach or permit to be attached additional locks
or similar devices to any door or window, change existing locks or the mechanism
thereof, or make or permit to be made any keys for any door other than those
provided by Landlord. If more than two keys for one lock are desired, Landlord
will provide them upon payment therefor by Tenant. Tenant, upon termination of
its tenancy, shall deliver to the Landlord all keys of offices, rooms and toilet
rooms which have been furnished Tenant or which the Tenant shall have had made,
and in the event of loss of any keys so furnished shall pay Landlord therefor.
(8) If Tenant desires signal, communication, alarm or other utility or
similar service connections installed or changed, Tenant shall not install or
change the same without the prior approval of Landlord, and then only under
Landlord's direction at Tenant's expense. Tenant shall not install in the
Premises any equipment which requires more electric current than Landlord is
required to provide under this Lease, without Landlord's prior approval, and
Tenant shall ascertain from Landlord the maximum amount of load or demand for or
use of electrical current which can safely be permitted in the Premises, taking
into account the capacity of electric wiring in the Property and the Premises
and the needs of tenants of the Property, and shall not in any event connect a
greater load than such safe capacity.
(9) Tenant shall not obtain for use upon the Premises ice, drinking
water, towel, and other similar services, except from Persons approved by the
Landlord. Any Person engaged by Tenant to provide janitor or other services
shall be subject to direction by the manager or security personnel of the
Property.
(10) The toilet rooms, urinals, wash bowls and other such apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein and the expense of any breakage, stoppage or damage resulting from the
violation of this Rule shall be borne by the Tenant who, or whose employees or
invitees shall have caused it.
(11) The janitorial closets, utility closets, telephone closets, broom
closets, electrical closets, storage closets, and other such closets, rooms and
areas shall be used only for the purposes and in the manner designated by
Landlord, and may not be used by tenants, or their contractors, agents,
employees, or other parties without Landlord's prior written consent.
(12) Landlord reserves the right to exclude or expel from the Property
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of these Rules. Tenant shall not at any time manufacture, sell, use or
give away, any spirituous, fermented, intoxicating or alcoholic liquors on the
Premises, nor permit any of the same to occur (except in connection with
occasional social or business events conducted in the Premises which do not
violate any Laws nor bother or annoy any other tenants). Tenant shall not at any
time sell, purchase or give away, food in any form by or to any of Tenant's
agents or employees or any other parties on the Premises, nor permit any of the
same to occur (other than in lunch rooms or kitchens for employees as may be
permitted or installed by Landlord, which does not violate any Laws or bother or
annoy any other tenant).
(13) Tenant shall not make any room-to-room canvass to solicit business
or information or to distribute any article or material to or from other tenants
or occupants of the Property and shall not exhibit, sell or offer to sell, use,
rent or exchange any products or services in or from the Premise unless
ordinarily embraced within the Tenant's use of the Premises specified in the
Lease.
(14) Tenant shall not waste electricity, water, heat or air
conditioning or other utilities or services, and agrees to cooperate fully with
Landlord to assure the most effective and energy efficient operation of the
Property and shall not allow the adjustment (except by landlord's authorized
Property personnel) of any controls. Tenant shall keep corridor doors closed and
shall
2
<PAGE> 42
not open any windows, except that if the air circulation shall not be in
operation, windows which are openable may be opened with Landlord's consent. As
a condition to claiming any deficiency in the air-conditioning or ventilation
services provided by Landlord, Tenant shall close any blinds or drapes in the
Premises to prevent or minimize direct sunlight.
(15) Tenant shall conduct no auction, fire or "going out of business
sale" or bankruptcy sale in or from the Premises, and such prohibition shall
apply to Tenant's creditors.
(16) Tenant shall cooperate and comply with any reasonable safety or
security programs, including fire drills and air raid drills, and the
appointment of "fire wardens" developed by landlord for the Property, or
required by Law. Before leaving the Premises unattended, Tenant shall close and
securely lock all doors or other means of entry to the Premises and shut off all
lights and water faucets in the Premises (except heat to the extent necessary to
prevent the freezing or bursting of pipes).
(17) Tenant will comply with all municipal, county, state, federal or
other government laws, statutes, codes, regulations and other requirements,
including without limitation, environmental, health, safety and police
requirements and regulations respecting the Premises, now or hereinafter in
force, at its sole cost, and will not use the Premises for and immoral purposes.
(18) Tenant shall not (i) carry on any business, activity or service
except those ordinarily embraced within the permitted use of the Premises
specified in the lease and more particularly, but without limiting the
generality of the foregoing, shall not (ii) install or operate any internal
combustion engine, boiler, machinery, refrigerating, heating or air conditioning
equipment in or about the Premises, (iii) use the Premises for housing, lodging
or sleeping purposes or for the washing of clothes, (iv) place any radio or
television antennae other than inside of the Premises, (v) operate or permit to
be operated any musical or sound producing instrument or device which may be
heard outside the Premises, (vi) intentionally deleted, (vii) operate any
electrical or other device from which may emanate electrical or other waves
which may interfere with or impair radio, television, microwave, or other
broadcasting or reception from or in the Property or elsewhere, (viii) bring or
permit any bicycle or other vehicle, or dog (except in the company of a blind
person or except where specifically permitted) or other animal or bird in the
Property, (ix) make or permit objectionable noise or odor to emanate from the
Premises, (x) do anything in or about the Premises tending to create or maintain
a nuisance or do any act tending to injure the reputation of the Property, (xi)
throw or permit to be thrown or dropped any article from any window or other
opening in the Property, (xii) use or permit upon the Premises anything that
will invalidate or increase the rate of insurance on any policies of insurance
now or hereafter carried on the Property or violate the certificates of
occupancy issued for the premises or the Property, (iii) use the Premises for
any purpose, or permit upon the Premises anything, that may be dangerous to
persons or property (including but not limited to flammable oils, fluids,
paints, chemicals, firearms or any explosive articles or materials) nor (xiv) do
or permit anything to be done upon the Premises in any way tending to disturb
any other tenant at the Property or the occupants of neighboring property.
(19) All cleaning and janitorial services for the Building and the
Premises shall be provided exclusively through Landlord, and except with the
written consent of Landlord, no person or persons other than those approved by
Landlord shall be employed by Tenant or permitted to enter the Building for the
purpose of cleaning the same. Landlord shall not in any way be responsible to
Tenant for any loss of property on the Premises, however occurring, or for any
damage to any Tenant's property by the janitor or any other employee or any
other person.
(20) Any freight elevator shall be available for use by all tenants in
the Building, subject to such reasonable scheduling as landlord in its sole
discretion shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Building or
carried in the elevators except between such hours and in such elevators as
shall be designated by Landlord.
(21) Tenant shall not use or keep in the Premises any flammable or
combustible fluid or material other than those limited quantities necessary for
the operation or maintenance of office equipment. Tenant shall not use or permit
to be used in the Premises any foul or noxious gas or
3
<PAGE> 43
substance. Tenant shall not use or permit the Premises to be used in a manner
offensive or objectionable to Landlord or any occupancy of the Building by
reason of noise, odors, or vibrations. Tenant shall not bring any animals into
the Building.
(22) Tenant shall not use any method of heating or air conditioning
other than that supplied or approved by Landlord.
(23) Tenant shall not use in any space or in the public halls of the
Building any mailcarts or hand trucks except those approved by Landlord.
(24) Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
(25) If the Property shall now or hereafter contain a building garage,
parking structure or other parking area or facility, the following Rules shall
apply in such areas or facilities:
(i) Parking shall be available in areas designated generally for tenant
parking, for such daily or monthly charges as Landlord may establish from time
to time not to exceed market rates, or as may be provided in any Parking
Agreement attached hereto (which, when signed by both parties as provided
therein, shall thereupon become effective). In all cases, parking for Tenant and
its employees, visitors, contractors and agents shall be on a "first come, first
served," unassigned basis, with Landlord and other tenants at the Property, and
their employees and visitors, and other Persons (as defined in Article 25 of the
Lease) to whom Landlord shall grant the right or who shall otherwise have the
right to use the same, all subject to these Rules, as the same may be amended or
supplemented, and applied on a non-discriminatory basis, all as further
described in Article 6 of the Lease. Notwithstanding the foregoing to the
contrary, Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, handicapped individuals, and other tenants,
visitors of tenants or other Persons, and Tenant and its employees and visitors
shall not park in any such assigned or reserved spaces. Landlord may restrict or
prohibit full size vans and other large vehicles. Notwithstanding anything
contained herein to the contrary, Landlord agrees to provide Tenant with parking
as outlined in Article 42 of this Lease.
(ii) In case of any violation of these provisions, Landlord may refuse
to permit the violator to park, and may remove the vehicle owned or driven by
the violator from the Property without liability whatsoever, at such violator's
risk and expense. Landlord reserves the right to close all or a portion of the
parking areas or facilities in order to make repairs or perform maintenance
services, or to alter, modify, re-stripe or renovate the same, or if required by
casualty, strike, condemnation, act of God, Law or governmental requirement, or
any other reason beyond Landlord's reasonable control. In the event access is
denied for any reason, any monthly parking charges shall be abated to the extent
access is denied, as Tenant's sole recourse. Tenant acknowledges that such
parking areas or facilities may be operated by an independent contractor not
affiliated with Landlord, and Tenant acknowledges that in such event, Landlord
shall have no liability for claims arising through acts or omissions of such
independent contractor, if such contractor is reputable.
(iii) Tenant and its employees shall have the right to park at its own
risk on a 24 hour, seven day per week basis, except in reasonable instances
necessary to maintenance of the garage. However, attended hours shall be 6 A.M.
to 8 P.M., Monday through Friday, and 10:00 A.M. to 1:00 P.M. on Saturdays, or
such other hours as may be reasonably established by Landlord or its parking
operator from time to time; cars must be parked entirely within the stall lines,
and only small cars may be parked in areas reserved for small cars; all
directional signs and arrows must be observed; the speed limit shall be 5 miles
per hour; spaces reserved for handicapped parking must be used only by vehicles
properly designated; every parker is required to park and lock his own car:
washing, waxing, cleaning or servicing of any vehicle is prohibited; parking
spaces may be used only for parking automobiles; parking is prohibited in areas:
(a) not striped or designated for parking, (b) aisles, (c) where "no parking"
signs are posted, (d) on ramps, and (e) loading areas and other specially
designated areas. Delivery trucks and vehicles shall use only those areas
designated therefor.
4
<PAGE> 44
(26) Landlord may waive any one or more of these Rules for the benefit
of Tenant or any other tenant, but no such waiver by Landlord shall be construed
as a waiver of such Rules in favor of Tenant or any other tenant, nor prevent
Landlord from thereafter enforcing any such Rules against any or all of the
tenants of the Building.
(27) These Rules are in addition to the terms, covenants, agreements
and conditions of any lease of premises in the Building. If these Rules conflict
with any provision of the Lease, the Lease shall control.
(28) Landlord reserves the right to add to and amend the Rules and to
add reasonable new rules and regulations as, in its sole judgment, may from time
to time be needed for safety and security, for care and cleanliness of the
Building and for the preservation of good order therein. Tenant agrees to abide
by all such Rules and any additional rules and regulations which may be adopted
provided same do not materially affect Tenant's rights under the Lease.
5
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 14, 2000 (except for note 12, as to which the date is January 28,
2000) included in or made a part of the Bluestar Communications Group Inc.
registration statement, and to all references made to our Firm.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BLUESTAR COMMUNICATIONS GROUP, INC. FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,901,707
<SECURITIES> 0
<RECEIVABLES> 140,115
<ALLOWANCES> 0
<INVENTORY> 108,051
<CURRENT-ASSETS> 13,475,516
<PP&E> 5,270,450
<DEPRECIATION> (252,950)
<TOTAL-ASSETS> 26,506,367
<CURRENT-LIABILITIES> 7,868,593
<BONDS> 503,174
37,016,697
0
<COMMON> 117,128
<OTHER-SE> (18,999,225)
<TOTAL-LIABILITY-AND-EQUITY> 26,506,367
<SALES> 771,109
<TOTAL-REVENUES> 771,109
<CGS> 8,082,759
<TOTAL-COSTS> 20,117,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (541,714)
<INCOME-PRETAX> (18,804,868)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,804,868)
<EPS-BASIC> (2.10)
<EPS-DILUTED> (2.10)
</TABLE>
