<PAGE>
As filed with the Securities and Exchange Commission on March 21, 2000
Registration Statement No. 333-96391
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Broadview Networks Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 4813 11-3310798
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification No.)
jurisdiction of Classification Code
incorporation or Number)
organization)
Vern M. Kennedy, Chief Executive Officer
Broadview Networks Holdings, Inc.
45-18 Court Square, Suite 300
Long Island City, NY 11101
(718) 707-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Thomas M. Vitale, Esq. John T. Gaffney, Esq.
Mayer, Brown & Platt Cravath, Swaine & Moore
1675 Broadway 825 Eighth Avenue
New York, NY 10019 New York, NY 10019
(212) 506-2500 (212) 474-1000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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
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<TABLE>
<CAPTION>
Proposed
Maximum
Aggregate Amount of
Title of Each Class of Amount to be Offering Registration
Securities to be Registered Registered (1) Price(1)(2) Fee(3)
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<S> <C> <C> <C>
Common Stock ($0.01 par value per
share).......................... 8,050,000 $161,000,000 $9,504
</TABLE>
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(1) Includes 1,050,000 shares issuable pursuant to an overallotment option
granted to the underwriters.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) promulgated under the Securities
Act of 1933, as amended.
(3) A registration fee of $33,000 was previously paid.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell securities, and we are not +
+soliciting offers to buy these securities, in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated March 21, 2000.
[LOGO BROADVIEW NETWORKS]
7,000,000 Shares
Broadview Networks Holdings, Inc.
Common Stock
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This is an initial public offering of shares of common stock of Broadview
Networks Holdings, Inc. All of the 7,000,000 shares of common stock are being
sold by Broadview Networks.
Prior to this offering, there has been no public market for the common stock.
Broadview Networks currently anticipates that the initial public offering price
will be between $18.00 and $20.00 per share. Broadview Networks has applied for
quotation of the common stock on the Nasdaq National Market under the symbol
"BDVU."
See "Risk Factors" beginning on page 8 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Broadview Networks......... $ $
</TABLE>
To the extent that the underwriters sell more than 7,000,000 shares of common
stock, the underwriters have the option to purchase an additional 1,050,000
shares of common stock from Broadview Networks at the initial public offering
price less the underwriting discount.
-----------
The underwriters expect to deliver the shares of common stock on , 2000.
Goldman, Sachs & Co. Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
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Prospectus dated , 2000.
<PAGE>
[INSIDE FRONT COVER]
[Examples of opening computer screens of our operating and customer care
systems]
<PAGE>
You should rely only on the information contained in this prospectus.
Broadview Networks has not authorized anyone to provide you with any other
information. Broadview Networks is offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 2000, all dealers that buy, sell or trade our
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 15
Corporate Information.................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 25
Management............................................................... 48
Certain Transactions..................................................... 57
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 74
Experts.................................................................. 74
Where You Can Find More Information about Broadview Networks............. 74
Index to Financial Statements............................................ F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that is set forth in more detail later
in this prospectus. You should read the entire prospectus carefully, especially
"Risk Factors" beginning on page 8.
Broadview Networks
Overview
We are an electronically integrated communications provider, or e-ICP, a
new type of competitive communications carrier that can electronically connect
with the information systems of Bell Atlantic and other key suppliers, then
automatically process data from those suppliers and incorporate it into its own
systems. We offer high-speed internet access and services using digital
subscriber line, or DSL, technology, data services, and local, long-distance
and international voice service to small and medium-sized businesses, small
office/home office customers and communications-intensive residential consumers
in the northeastern United States.
Despite our limited operating history, as of December 31, 1999, we had
approximately 39,000 customers with approximately 72,000 access lines. In 1999,
our revenues were $37.2 million, compared with revenues of $10.9 million in
1998. As we grow and expand our network, we expect to incur significant
expenditures as well as continued operating losses and negative cash flow for
the next few years.
Our business is founded on the premise that a communications provider needs
integrated systems and highly-automated processes to cost-effectively meet
customers' needs in an increasingly competitive environment. As such, in
October 1996, we became the first company to implement software systems that
automatically and electronically process data from Bell Atlantic and
incorporate it directly into its network provisioning, billing and customer
care systems. We believe the level of electronic integration provided by our
proprietary OPENnet systems represents a significant improvement over the
electronic bonding traditionally used by competitive telephone carriers.
We have developed and implemented the following three customized processes,
collectively known as Smart/3/, by which we sell to customers, place them on
our network and provide them with customer care:
. SmarterAcquire. In order to provide services rapidly, generally within
five business days of taking an order, we initially resell the services
of Bell Atlantic and others. In comparison, we believe our competitors,
who put new customers directly onto their networks, typically experience
a delay of 20-30 business days in providing services.
. SmarterBuild. After we acquire a customer base in a particular
geographic area, we migrate our customers' lines in bulk from the Bell
Atlantic network onto our own network using a highly-automated,
efficient process we developed. We believe our unique high-volume
migration process reduces labor, time, cost, efforts and service
disruptions compared to companies who connect access lines to their
networks one at a time.
3
<PAGE>
. SmarterCare. Our customer care associates, supported by our proprietary
systems, are able to address all customer care functions, including
service and features ordering, billing, service inquiry and account
administration. They are available to customers 24 hours a day, seven
days a week.
Business Strategy
The key elements of our business strategy are:
. Focus on small and medium-sized businesses. We use a dedicated sales
force to target small and medium-sized businesses and address their
needs for simplicity and one-stop shopping by providing integrated
bundles of data and voice services which are invoiced on a single
invoice.
. Rapidly acquire customers and provide services with SmarterAcquire. We
will continue to use our systems and processes to rapidly enter new
markets and generate customer revenues.
. Increasingly focus on data services. We have recently begun our
commercial introduction of DSL-based services in New York, augmenting
our DSL-trained sales force with data sales specialists and installing
high-speed data switches.
. Foster customer loyalty by providing SmarterCare. We intend to further
enhance our customer care by permitting customers to interact directly
with our systems online, giving them a choice of self-service over the
internet or personalized attention from one of our customer care
associates.
. SmarterBuild our state of the art, scalable network. We will continue to
deploy our network assets in a particular location after we have
acquired a customer base, reducing our capital risk and producing an
improved return on invested capital.
. Capture market share through geographic expansion. We currently offer
services in New York and Massachusetts, and intend to expand our
operations into other markets within the Bell Atlantic region as well as
into selected other regions.
. Leverage the experience of our management team. Our eight executive
officers have an average of 18 years of experience in the communications
industry, and are former executives of companies including Bell
Atlantic, Teleport Communications Group, Covad, MFS Communications, AT&T
and MCI.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered............................ 7,000,000 shares
Common stock to be outstanding after this
offering....................................... 32,627,116 shares
Over-allotment option........................... 1,050,000 shares
Proposed Nasdaq National Market symbol.......... BDVU
Use of proceeds................................. We currently intend to use
the net proceeds for
expansion and development of
our network infrastructure
and other general corporate
purposes including sales and
marketing, information
technology systems and the
funding of operating losses.
</TABLE>
Unless otherwise specifically stated, all information in this prospectus,
including the calculation of the number of shares to be outstanding after this
offering:
. reflects the automatic conversion of all outstanding shares of our
Series A convertible preferred stock, Series B convertible preferred
stock, Series C mandatorily redeemable convertible preferred stock and
Series D mandatorily redeemable convertible preferred stock into
17,561,703 shares of our common stock following the closing of this
offering;
. the termination of the mandatory redemption feature of 370,000 shares
of mandatorily redeemable common stock;
. assumes the underwriters do not exercise their over-allotment option;
and
. does not reflect shares that may be issued upon the exercise of options
or warrants.
5
<PAGE>
Summary Consolidated Financial Data
The following tables list our summary consolidated financial data. You
should read this information together with the consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus and the information under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In the following table, "adjusted EBITDA" is defined as earnings before
interest income, income taxes, depreciation, amortization, and non-cash
compensation expense. EBITDA is a non-GAAP measure commonly used by investors
and analysts to analyze companies on the basis of operating performance,
leverage and liquidity. We present adjusted EBITDA, which is also a non-GAAP
measure, to enhance the understanding of our operating results. We believe
adjusted EBITDA is an indicator of our operating profitability since it
excludes items which are not directly attributable to our ongoing business
operations. Broadview Networks excludes non-cash compensation from adjusted
EBITDA because the nature of the charge is non-recurring and does not reflect
the ongoing performance of the business. However, adjusted EBITDA relies upon
management's judgment to determine which items are directly attributable to our
ongoing business operations and as such is subjective in nature. Neither EBITDA
nor adjusted EBITDA should be construed as an alternative to net income as an
indicator of a company's operating performance or as an alternative to cash
flow from operating, investing and financing activities as a measure of a
company's liquidity. For information about cash flows or results of operations
in accordance with generally accepted accounting principles, please see the
audited consolidated financial statements included elsewhere in this
prospectus.
The pro forma balance sheet data gives effect to the sale and issuance of
6,006,959 shares of Series D mandatorily redeemable convertible preferred stock
for net proceeds of $27.9 million and the assumed conversion of all preferred
stock and mandatorily redeemable common stock outstanding into shares of common
stock upon the completion of this offering.
The pro forma as adjusted balance sheet data gives effect to the sale of
7,000,000 shares of common stock in this offering, assuming an initial public
offering price of $19 per share and after deducting underwriting discounts and
commissions and estimated offering expenses of $2.2 million.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues, net..................................... $ 2,070 $10,866 $ 37,203
Operating expenses:
Cost of revenues (excluding depreciation and
amortization).................................... 1,759 9,507 33,965
Operating expenses (excluding non-cash
compensation and depreciation and amortization).. 1,503 10,172 29,406
Non-cash compensation............................. -- 495 10,920
Depreciation and amortization..................... 124 610 1,060
------- ------- --------
Total operating expenses........................ 3,386 20,784 75,351
------- ------- --------
Operating loss.................................... (1,316) (9,918) (38,148)
------- ------- --------
Net loss.......................................... $(1,302) $(9,711) $(37,631)
======= ======= ========
Other Consolidated Financial Data:
Capital expenditures.............................. $ 62 $ 601 $ 15,678
Cash used in operating activities................. (688) (9,309) (19,683)
Cash used in investing activities................. (249) (474) (14,252)
Cash provided by financing activities............. 1,416 12,064 36,454
Adjusted EBITDA................................... (1,192) (8,813) (26,168)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1999
Pro Forma
1999 as
1999 Pro Forma Adjusted
------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 5,572 $33,522 $155,012
Working capital............................... (1,292) 26,658 148,148
Total assets.................................. 30,709 58,659 180,149
Long-term obligations, less current portion... 7,979 7,979 7,979
Mandatorily redeemable securities............. 44,068 -- --
Stockholders' equity (deficit)................ (36,675) 35,343 156,833
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our
business, financial condition and results of operations would likely suffer. In
such case, the market price of our common stock could decline, and you may lose
all or part of your investment in our common stock.
Our limited operating history makes evaluating our performance and prospects
difficult
We were incorporated and began operations in March 1996. As a result of our
limited operating history, we have limited historical financial data on which
an evaluation of our performance or our prospects can be based. Our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development, particularly those
in new and rapidly evolving markets. To address these risks, we must, among
other things: expand the geographic coverage of our services; attract and
retain customers within our existing and new regions; increase awareness of our
services; respond to competitive developments; continue to attract, retain and
motivate qualified employees; continue to upgrade our technologies; incorporate
these technologies into our service offerings; and effectively manage our
expanding operations. Our inability to successfully address these risks could
have a material adverse effect on our business, prospects, operating results
and financial condition. In one or more future quarters, our results of
operations may fall below the expectations of securities analysts and
investors. This would likely materially adversely affect the market price of
our common stock.
We have a history of operating and net losses, cash used in operating
activities and negative adjusted EBITDA since our inception and we may not be
profitable in the future
We have experienced operating and net losses, cash used in operating
activities and negative adjusted EBITDA in each quarter since our inception.
The accumulated deficit at December 31, 1999 was $48,734,222. We may continue
to lose money for the forseeable future because we plan to continue to incur
significant expenses. If we cannot achieve or sustain operating income, net
income, cash provided by operating activities and positive adjusted EBITDA in
the future, we may not be able to meet our working capital requirements or pay
interest on our debt, which would have a material adverse effect on our
business, financial condition and results of operations and on the market price
of our common stock.
We have limited experience in offering DSL, internet and new communications
services and may be unable to do so successfully
Our strategy includes offering a full suite of communications services,
including high speed data services, some of which are based on DSL technology,
and internet service. We have limited experience providing these new services
and may be unable to do so successfully, which could damage our reputation and
the perception of our brand name. Our ability to offer a full suite of services
will depend on many factors, including our ability to:
.upgrade our network and install new equipment;
. successfully meet technical requirements with which we have had little
experience to date; and
. expand, train and manage our employee base.
Our failure to do any of these things effectively could materially
adversely affect our results of operations and the market price of our common
stock.
8
<PAGE>
If we do not receive market acceptance for our services, we may find it
difficult to achieve or sustain profitable operations
Although we currently sell our products and services in several of our
target markets, we do not have a significant market share in any of those
markets. Accordingly, the success of our service offerings and our ability to
achieve and sustain profitable operations will be dependent upon, among other
things, our ability to convince prospective customers to accept us as their new
provider of telecommunications services. The markets for competitive local and
long distance service, internet access and high-speed data communications,
including those services based on DSL technology, are in the early stages of
development. We may not receive market acceptance and prices and demand for our
services may not be sufficient to achieve or sustain profitable operations. If
the markets for our new services fail to develop, grow more slowly than
anticipated or become saturated with competitors, our ability to convince
prospective customers to use our telecommunications services could be
materially adversely affected.
If we are unable to obtain additional financing, we may be compelled to alter
our business strategy and our operations may suffer
In order to implement our business plan, or if our working capital needs
exceed our current expectations, we may need to raise additional capital from
debt or equity sources. If we are not successful in raising sufficient debt or
equity capital on a timely basis, on acceptable terms, or at all, we could be
compelled to alter our business strategy, delay or abandon some of our future
plans or expenditures, sell assets or default on interest payments on our
indebtedness. Any of these events would have a material adverse effect on our
business, financial condition and results of operations and on the market price
of our common stock.
An inability to manage our growth effectively could adversely affect our future
performance and our ability to implement our business plan
As part of our business plan, we intend to rapidly expand our operations.
Our growth to date has placed, and in the future will continue to place, a
significant strain on our administrative, operational and financial resources.
If we fail to successfully improve and upgrade our administrative, operational
and financial systems and controls at a pace consistent with the growth of our
business, it could materially adversely affect our performance and our ability
to implement our business plan. We will also need to control costs and maintain
regulatory compliance which may become more difficult if we rapidly expand.
It will be difficult to expand geographically unless we are able to attract and
retain sales, technical and management personnel and other employees
Difficulty in hiring and retaining personnel could delay or prevent the
execution of our plans to expand geographically and could materially adversely
affect us. In particular, we believe we will need to attract a significant
number of sales, customer service and technical personnel. Competition for
qualified personnel in the communications industry is intense.
Our success also depends to a significant extent upon the abilities and
continued efforts of our existing management team. We have employment
agreements with all of our executive officers. The loss of any member of our
management team could materially adversely affect us.
Our failure to sustain desired pricing levels could impair our ability to
achieve profitability or positive cash flow
Prices for communications services have historically fallen, a trend we
expect will continue. Accordingly, we cannot predict to what extent we may need
to reduce our prices to remain
9
<PAGE>
competitive or whether we will be able to sustain future pricing levels as our
competitors introduce competing services or similar services at lower prices.
Our failure to achieve or sustain market acceptance at desired pricing levels
could impair our ability to achieve profitability or positive cash flow, which
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
The conduct of Bell Atlantic and other incumbent local exchange carriers could
cause us to lose customers
We are highly dependent on Bell Atlantic's willingness and ability to
provide us with the use of its local network lines and facilities, including
its leased telephone lines and interoffice transport facilities, in a timely,
efficient and cost-effective manner. We have entered into two interconnection
agreements with Bell Atlantic covering the New York and Massachusetts markets.
The initial term of our New York agreement expired on December 31, 1999, at
which time the agreement was automatically extended. It may be terminated by
either party upon 90 days' written notice. Our Massachusetts agreement will
expire in April 2001, unless either party requests negotiation prior to that
time, in which case the agreement would remain in effect until a new agreement
is executed or an arbitration decision is made by the Massachusetts Department
of Telecommunications and Energy. If these agreements are terminated, Bell
Atlantic is obligated to continue providing us with access to its network but
may do so under a new interconnection agreement, under standard interconnection
terms and conditions approved by regulators, or under tariff terms and
conditions available to all competitive communications providers, otherwise
known as competitive local exchange carriers, or CLECs, all of which are or may
be less favorable to us than the terms of our current agreements. The
provisions of our agreements are subject in their entirety to the
Telecommunications Act of 1996 and orders from other governmental regulatory
agencies. Bell Atlantic is, and will probably continue to be, both our largest
supplier and our largest competitor. As a result, Bell Atlantic has an inherent
conflict of interest in cooperating with us.
If we expand geographically, we will be similarly dependent on the
traditional telephone company, otherwise known as an incumbent local exchange
carrier, or ILEC, in each new market, and each ILEC will be similarly
conflicted. We cannot guarantee that Bell Atlantic or the ILEC in any of our
future markets will comply with state and federal regulations or contracts
governing its interactions with us, or will provide us with the cooperation we
require. Nor can we confirm that our existing interconnection agreements will
not be terminated or that we will be able to negotiate interconnection
agreements in the other markets in which we intend to offer local service. If
we are unable to obtain Bell Atlantic's cooperation, or secure or maintain
interconnection agreements, it could have a material adverse effect on our
business, prospects, financial condition and results of operations.
Any failure of our suppliers and other service providers to provide us with
services, equipment or access could affect our ability to provide quality
services to customers
We are highly dependent on third parties to supply us with services,
equipment and access. Any failure on their part to adequately supply us or
maintain the quality of their facilities and services could cause our customers
to experience delays in service and lower levels of customer care, which could
materially adversely affect our ability to provide quality services to our
customers. For example:
. We lease our transport capacity, including the transmission facilities
which give us access to our customers, from ILECs and other
competitive transport carriers;
. We resell, on a usage basis, regional, long distance, international
and internet services of traditional and new market suppliers. While
we plan to offer DSL services over our own facilities, we may still
selectively resell DSL services of other providers at the same time;
. Our DSL-enabled services depend on the quality of the telephone lines
and the ILECs' maintenance of such lines; and
10
<PAGE>
. We rely on a single or limited number of vendors to supply key
components of our current and future network infrastructure, including
switching, access and networking equipment and DSL equipment that is
currently under development and that we plan to incorporate once it
becomes commercially available.
Many of these entities are, or may become, our competitors. We cannot
assure you that we will be able to obtain use of these facilities or services
in a timely manner, on terms and in quantities satisfactory to us, or at all.
Occasionally we have experienced delays or other problems in receiving these
facilities and services. In addition, we cannot guarantee that the third party
providers we use will maintain the quality of their facilities and services.
The occurrence of any of these events could affect our ability to provide
quality services to our customers and could materially adversely affect us.
If we do not upgrade or modify our OPENnet software and Smart/3/ processes in
response to changing business conditions as we expand, we may not be able to
acquire, manage and service our customers
Our business strategy is largely based on our OPENnet software, our unique
Smart/3/ business processes and the level of integration that we have achieved
with Bell Atlantic in New York and Massachusetts and with other vendors. If
Bell Atlantic or our other key vendors modify or enhance their systems on short
or no notice, or we otherwise fail to keep our software synchronized with that
of our vendors, it may significantly impair our ability to add new customers
and care for and bill our existing customers.
In addition, in order to successfully execute our strategy of expanding
into other markets within the Bell Atlantic region and in selected other
regions, we will need to integrate with the ILEC in those areas. We have not
yet attempted to integrate with ILECs outside New York and Massachusetts and
will likely need to modify our software and processes in order to successfully
do so. An inability to adequately upgrade or modify OPENnet or our Smart/3/
processes could hurt our ability to acquire, manage or service our customers.
Failure of our software could increase our costs, disrupt our services and
reduce demand for our services
Our OPENnet software is subject to design, coding and other software flaws.
Although we have taken reasonable and necessary precautions, we are also
vulnerable to hackers, computer viruses and equipment failures, including
failures of our computers, servers and data networks. The occurrence of any of
these events could result in partial or total failure of our systems, loss or
diminution in service delivery performance, additional and unexpected expenses
to fund further systems development or to add programming personnel to complete
or correct development, and loss of revenue because of the inability of
customers to use our services.
We are subject to the risk of physical network failure and security risks, the
occurrence of which could cause service failures and a reduction in revenues
Our physical networks and the networks of others on which we depend are
subject to damage from fires, floods, power losses, telecommunications
failures, transmission cable cuts and similar unforeseen events. They are also
subject to capacity limitations, breaches of security by computer virus,
sabotage, break-ins and other factors. Any of these occurrences may cause
systems failures, interruptions in service or reduced customer capacity, which
could reduce our ability to acquire, manage or service our customers and reduce
our revenues.
11
<PAGE>
Our ability to finance our future operations and engage in other business
activities may be restricted by the terms of our indebtedness
The covenants in our vendor financing facility may adversely affect our
ability to finance our future operations or capital needs or to engage in other
business activities that may be in the best interests of our stockholders. As a
result, these restrictive covenants could have a material adverse effect on our
business, financial condition and results of operations and on the market price
of our common stock.
The terms of our vendor financing facility with NTFC Capital Corporation
restrict, and in some cases significantly limit or prohibit our ability and the
ability of our subsidiaries to, among other things:
. pay dividends and make other distributions on capital stock and redeem
capital stock;
. incur additional indebtedness, create liens on our assets or assume
contingent obligations;
. make investments, advances and loans;
. lease personal property;
. engage in transactions with our shareholders and affiliates;
. remove collateral from various locations;
. make capital expenditures inconsistent with the business plan we
submitted to NTFC Capital Corporation when we entered into the
facility;
. engage in mergers and consolidations; and
. sell assets outside the ordinary course of business.
We are controlled by a limited number of stockholders whose interests may be
different from the interests of our public stockholders, which could depress
the price of our stock
Our executive officers, directors, significant stockholders and entities
affiliated with them will control approximately 67.9% of our common stock
following this offering. As a result, these stockholders will have significant
influence over our future operations and strategy, including the election of
directors and the approval of significant corporate transactions, which limits
the influence of our public stockholders and could depress the price of our
stock. Conflicts of interest between these stockholders and our public
stockholders may arise. For example, the interests of the institutional and
management stockholders regarding any proposed merger or sale of our company
may differ from the interests of our new public stockholders, especially if the
consideration to be paid for the common stock is less than the price paid by
public stockholders.
Competition in our industry is intense and growing, and an inability to compete
effectively could cause us to lose customers and impede our ability to attract
new customers
Our industry is highly competitive, and we expect competition to intensify
in the future. We do not have a significant market share in any of our markets.
Several of our competitors have substantially greater financial, technical,
marketing and other resources than we do. In particular, our primary competitor
in each of our existing markets, the ILEC, has advantages over us that could
cause us to lose customers and impede our ability to attract new customers.
These advantages include:
. brand or corporate name recognition;
. longstanding relationships with their customers;
. significantly greater financial, technical, marketing and other
resources;
. an ability to subsidize local services with revenues from other
businesses; and
. an ability to lower the price of competitive telecommunications
services.
12
<PAGE>
The competition we face in the telecommunications services market is likely
to intensify due to a variety of factors, including:
. larger and more competitive companies resulting from the continuing
trend toward business combinations and alliances in the communications
industry;
. rapid technological innovation and lack of substantial barriers to
entry;
. single product carriers increasingly becoming all distance carriers;
and
. a decrease in regulatory restrictions on Regional Bell Operating
Companies such as Bell Atlantic.
If we are unable to anticipate and adapt to technological change, our service
offerings may not satisfy customer demands
Failure to anticipate and adapt successfully to any technological change or
obsolescence, or the failure to obtain access to important technologies, could
cause us to lose customers and impede our ability to attract new customers. The
communications industry has been, and is likely to continue to be, subject to:
. rapid and significant technological change, including continuing
developments in DSL technology, which does not presently have widely
accepted standards;
. frequent introductions of new services and alternative technologies,
including new technologies for providing high-speed data services; and
. evolving industry standards.
We expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, some of our services or
technologies. Also, technological changes, including advancements in emerging
wireline and wireless technologies, the use of unlicensed frequencies, internet
services and technologies, photonic and infrared-based technologies and others,
could result in lower retail rates for communications services. We may be
unable to obtain access to new technology on a timely basis or on satisfactory
terms.
The Telecommunications Act and other regulatory and legal uncertainties could
harm our business
Telecommunications services are subject to significant regulation at the
federal, state, local and international levels. The Telecommunications Act has
resulted in comprehensive changes in the regulatory environment for the
communications industry and has materially affected the competitive
environment. We cannot predict how the FCC, state regulators, courts and the
ILECs will interpret and implement the relevant provisions of the
Telecommunications Act or the effect that those interpretations and
implementations will have on us and our industry. There is considerable
uncertainty regarding numerous regulatory issues in the communications
industry, including the appropriate methodology to determine the price of
leased telephone lines, the ability to file with the FCC to enforce
interconnection agreements and the applicability of existing regulations to new
technologies such as internet protocol telephony. We cannot predict the impact
of these and other regulatory developments on us, our operations and our
competitors.
Future sales of our stock may lower our stock price
The market price of our common stock may fall significantly if existing
stockholders sell a large number of shares of our common stock in the market
following this offering, or investors perceive that such sales could occur.
Such sales also might make it more difficult for us to sell equity
13
<PAGE>
securities in the future at a time and at a price that we believe is
appropriate. Immediately after this offering, there will be 32,627,116 shares
of our common stock outstanding. Of these shares, the 7,000,000 shares sold in
this offering will be available for immediate resale in the public market. The
remaining 25,627,116 shares of common stock outstanding after this offering
will become available for resale in the public market, subject to applicable
volume and manner of sale restrictions under Rule 144, as follows:
<TABLE>
<CAPTION>
Number of
Date of First Availability for Resale Shares
------------------------------------- ----------
<S> <C>
Immediately after the date of this prospectus................ 58,744
----------
90 days after the date of this prospectus.................... 29,959
----------
At various times after 180 days from the date of this
prospectus.................................................. 25,538,413
----------
</TABLE>
In addition, the holders of 18,151,342 shares of common stock, including
shares in the preceding table, have contractual registration rights with
respect to their shares.
Our stock does not have a trading history and may be extremely volatile given
the industry in which we operate
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which investor interest in Broadview
Networks will lead to the development of an active trading market or how liquid
that market may become. The initial public offering price for the shares will
be determined by negotiations between the underwriters and us and may not be
indicative of the market price for the common stock that will prevail in the
trading market following this offering.
The market price at which our common stock will trade after this offering
is likely to be volatile. In particular, the stock market has experienced
extreme price and volume fluctuations affecting the stock of communications
companies. These fluctuations may be unrelated or disproportionate to our
performance, and may result in a significant decline in the trading price of
our common stock.
In the past, securities class action litigation has been instituted against
companies following periods of volatility in the market price of their
securities. If instituted against us, regardless of the outcome, this
litigation could result in substantial costs and diversion of our management's
attention and resources and could have a material adverse effect on our
business, financial condition and results of operations.
You will experience immediate and substantial dilution of $14.19 in the book
value of your investment
Investors purchasing shares in this offering will incur immediate and
substantial dilution of $14.19 in the book value of their investments because
the initial public offering price they pay will exceed the net tangible book
value per share of the shares they acquire. In large part, this dilution is due
to the fact that our existing stockholders paid significantly less than the
initial public offering price when they invested. To the extent outstanding
options to purchase common stock are exercised, investors will experience
further dilution.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including the risks faced by us
described above and elsewhere in this prospectus. We assume no obligation to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
14
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 7,000,000 shares of common stock
being offered by us, at an assumed public offering price of $19.00 per share,
which is the midpoint of the offering range, less estimated underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $121,490,000, or $140,044,000 if the underwriters' overallotment
option is exercised in full.
We intend to use the net proceeds from this offering as follows:
--approximately $70.0 million to fund the expansion and development of
our network infrastructure.
--approximately $50.0 million to cover general corporate expenses,
including sales and marketing, information technology systems and the
funding of operating losses.
We may also use a portion of the net proceeds to acquire complementary
businesses, although we have no definitive agreements to do so at this time.
The amounts actually expended for these purposes will vary significantly
depending on a number of factors, including revenue growth, if any, and the
extent and timing of our entry into target markets and capital expenditures.
Prior to the application of the net proceeds from the offering as described
above, these proceeds will be invested in marketable, investment-grade
securities.
CORPORATE INFORMATION
We were incorporated in New York in March 1996 and converted to a Delaware
corporation in July, 1998. We hold a 100% interest in Broadview Networks, Inc.,
a New York corporation and our main operating subsidiary. Additionally, we hold
a 100% interest in Open Support Systems LLC, a Connecticut limited liability
company. Open Support Systems is the operating subsidiary that owns and has
developed the OPENnet software used by Broadview Networks, Inc. Prior to
October 1999, we operated under the name Coaxicom Inc., while Broadview
Networks, Inc. operated under the name Community Networks, Inc.
Our principal executive offices are located at 45-18 Court Square, Suite
300, Long Island City, New York 11101. Our telephone number at this location is
(718) 707-8800 and our internet address is www.broadviewnet.com.
Open Support Systems has filed applications to register OPENnet, OPENorder,
OPENfix, OPENbill, OPENcare, OPENcontact and OPENgateway as service marks.
Broadview Networks, Inc. has filed applications to register Smart/3/,
SmarterAcquire, SmarterBuild, SmarterCare, One Touch and One Touch Care as
service marks. Each trademark, trade name or service mark of any other company
appearing in this prospectus belongs to its holder.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future we intend to retain our earnings for our operations and
the expansion of our business and do not expect to pay dividends on our common
stock. The payment of any future dividends will be at the discretion of our
board of directors and will depend on, among other factors, our earnings,
financial condition, capital requirements and general business outlook at the
time payment is considered. In addition, our ability to pay dividends will
depend on the amount of distributions, if any, received from our operating
subsidiaries, Broadview Networks, Inc. and Open Support Systems, LLC, or any of
our future operating subsidiaries. Our existing vendor financing facility with
NTFC Capital Corporation does, and any future indebtedness incurred by us may,
restrict our ability to pay dividends.
15
<PAGE>
CAPITALIZATION
The following cash and capitalization table sets forth:
. Our actual cash and capitalization as of December 31, 1999.
. Our pro forma cash and capitalization after giving effect to:
. the conversions of the Series A and B convertible preferred shares
into 3,446,070 and 1,838,799 shares of common stock, respectively;
and
. the conversion of the Series C mandatorily redeemable convertible
preferred shares into 6,269,875 shares of common stock; and
. the sale and issuance of 6,006,959 shares of Series D mandatorily
redeemable convertible preferred stock for $27,950,000, net of
issuance costs of $50,000 and their subsequent conversion into
6,006,959 shares of common stock; and
. the termination of the mandatorily redeemable feature of the
370,000 shares of common stock sold to an executive officer.
. Our pro forma, as adjusted, cash and capitalization to reflect the
issuance of 7,000,000 shares in this offering and the net proceeds
received of $121,490,000.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
<S> <C> <C> <C>
(in thousands)
Cash and cash equivalents...................... $ 5,572 $ 33,522 $155,012
======== ======== ========
Long-term obligations, including current
portion....................................... $ 8,798 $ 8,798 $ 8,798
-------- -------- --------
Mandatorily redeemable securities
Series C convertible preferred shares, $0.01
par value, 6,269,875 shares authorized,
issued and outstanding, actual; no shares
issued and outstanding, pro forma or pro
forma as adjusted............................ 38,888 -- --
Series D convertible preferred shares, $0.01
par value, 6,006,959 shares authorized; no
shares issued and outstanding actual, pro
forma or pro forma as adjusted............... -- -- --
Common stock, $0.01 par value, 370,000 shares
issued and outstanding actual, no shares
issued and outstanding pro forma or pro forma
as adjusted ................................. 5,180 -- --
-------- -------- --------
Total mandatorily redeemable securities...... 44,068 -- --
-------- -------- --------
Stockholders' equity (deficit)
Convertible preferred stock, $0.01 par value,
16,900,000 shares authorized; 17,600,000
shares authorized pro forma..................
Series A, $0.01 par value, 3,446,070 shares
authorized, issued and outstanding, actual;
no shares issued and outstanding, pro forma
or pro forma as adjusted..................... 35 -- --
Series B, $0.01 par value, 1,838,799 shares
authorized, issued and outstanding, actual;
no shares issued and outstanding, pro forma
or pro forma as adjusted..................... 18 -- --
Common stock, $0.01 par value, 32,000,000
shares authorized, 7,695,413 shares issued
and outstanding, actual; 36,000,000 shares
authorized, 25,627,116 shares issued and
outstanding, pro forma, and 32,627,116 shares
issued and outstanding pro forma as
adjusted..................................... 77 256 326
Receivable from officer for issuance of
stock........................................ (960) (960) (960)
Additional paid-in capital.................... 33,290 105,182 226,602
Deferred compensation......................... (20,401) (20,401) (20,401)
Accumulated deficit........................... (48,734) (48,734) (48,734)
-------- -------- --------
Total stockholders' equity (deficit)......... (36,675) 35,343 156,833
-------- -------- --------
Total capitalization......................... $ 16,191 $ 44,141 $165,631
======== ======== ========
</TABLE>
16
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
$35,343,101 or $1.38 per share of outstanding common stock, after giving effect
to the adjustments shown in the pro forma column under "Capitalization." The
pro forma net tangible book value per share represents our total tangible
assets less total liabilities, divided by 25,627,116 shares of common stock
outstanding on a pro forma basis before the offering. Dilution per share
represents the difference between the amount per share paid by investors in
this offering and the pro forma net tangible book value per share after the
offering. After giving effect to this offering, the as adjusted pro forma net
tangible book value at December 31, 1999 would have been $156,833,101 or $4.81
per share. This represents an immediate increase in the net tangible book value
of $3.43 per share to existing stockholders and an immediate dilution in net
tangible book value of $14.19 per share to new investors purchasing shares at
the initial public offering price. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $19.00
Pro forma net tangible book value per share as of December 31,
1999............................................................ $1.38
Increase in pro forma net tangible book value per share attribut-
able to this
offering....................................................... 3.43
-----
Pro forma net tangible book value per share after this offering... 4.81
------
Dilution per share to new investors............................... $14.19
======
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
1999, the number of shares of common stock purchased from Broadview Networks,
the total consideration paid and the average consideration paid per share by
our existing stockholders and by the new investors at an assumed initial public
offering price of $19.00 per share for shares purchased in this offering,
before deducting underwriting discounts and commissions and our offering
expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 25,627,116 78.5% $ 73,712,477 35.7% $ 2.88
New investors................ 7,000,000 21.5 133,000,000 64.3 19.00
---------- ----- ------------ -----
Total...................... 32,627,116 100.0% $206,712,477 100.0%
========== ===== ============ =====
</TABLE>
The discussion above assumes no exercise of any options after the date of
this offering. As of the date of this offering, an aggregate of 6,140,416
shares of common stock were issuable following the exercise of outstanding
employee and director options issued under our 1997 and 2000 Stock Option Plans
at an average exercise price of $6.56 per share. If all options outstanding as
of the date of this offering were exercised, the net tangible book value per
share immediately after completion of this offering would be $5.09. This
represents an immediate increase in net tangible book value of $0.28 per share
to purchasers of common stock in this offering.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present summary consolidated financial data for the
period from March 21, 1996 to December 31, 1996 and for the years ended
December 31, 1997 through 1999. The statement of operations, cash flow and
balance sheet data for the period from March 21, 1996 to December 31, 1996 and
for the years ending December 31, 1997 through 1999 have been derived from
financial statements, including those set forth elsewhere in this prospectus,
that have been audited by PricewaterhouseCoopers LLP, independent accountants.
See Note 2 to the consolidated financial statements appearing elsewhere in
this prospectus for an explanation of the method used to determine the number
of shares used to compute basic and diluted net loss per share in the following
tables.
In the following table, "adjusted EBITDA" is defined as earnings before
interest income, income taxes, depreciation, amortization, and non-cash
compensation expense. EBITDA is a non-GAAP measure commonly used by investors
and analysts to analyze companies on the basis of operating performance,
leverage and liquidity. We present adjusted EBITDA, which is also a non-GAAP
measure, to enhance the understanding of our operating results. We believe
adjusted EBITDA is an indicator of our operating profitability since it
excludes items which are not directly attributable to our ongoing business
operations. Broadview Networks excludes non-cash compensation from adjusted
EBITDA because the nature of the charge is non-recurring and does not reflect
the ongoing performance of the business. However, adjusted EBITDA relies upon
management's judgment to determine which items are directly attributable to our
ongoing business operations and as such is subjective in nature. Neither EBITDA
nor adjusted EBITDA should be construed as an alternative to net income as an
indicator of a company's operating performance or as an alternative to cash
flow from operating, investing and financing activities as a measure of a
company's liquidity. For information about cash flows or results of operations
in accordance with generally accepted accounting principles, please see the
audited consolidated financial statements included elsewhere in this
prospectus.
18
<PAGE>
<TABLE>
<CAPTION>
Period from
March 21, 1996
(inception) to Year Ended December 31,
December 31, 1996 ----------------------------------
<S> ----------------- <C> <C> <C>
1997 1998 1999
---------- ---------- ----------
(in thousands, except per share data)
Consolidated Statement
of Operations Data:
Revenues, net........... $ 4 $ 2,070 $ 10,866 $ 37,203
Operating expenses:
Cost of revenues (ex-
cluding depreciation
and amortization)...... 3 1,759 9,507 33,965
General and administra-
tive................... 95 1,024 4,555 16,288
Sales and marketing..... -- 449 4,181 11,034
Software development.... -- 30 1,436 2,084
Depreciation and amorti-
zation................. 1 124 610 1,060
Non-cash compensation... -- -- 495 10,920
---------- ---------- ---------- ----------
Total operating ex-
penses............... 99 3,386 20,784 75,351
---------- ---------- ---------- ----------
Operating loss.......... (95) (1,316) (9,918) (38,148)
Interest income......... 5 18 221 854
Interest expense........ -- (4) (14) (337)
---------- ---------- ---------- ----------
Net loss................ (90) (1,302) (9,711) (37,631)
Accretion of mandatorily
redeemable
preferred shares....... -- -- -- (11,092)
---------- ---------- ---------- ----------
Net loss applicable to
common stockholders.... $ (90) $ (1,302) $ (9,711) $ (48,723)
========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (0.02) $ (0.24) $ (1.49) $ (6.73)
========== ========== ========== ==========
Shares used to compute
basic and diluted
net loss per share..... 3,850,844 5,391,317 6,510,871 7,238,631
Other Consolidated
Statement of Operations
Data:
Capital expenditures.... $ 14 $ 62 $ 601 $ 15,678
Cash used in operating
activities............. (95) (688) (9,309) (19,683)
Cash used in investing
activities............. (14) (249) (474) (14,252)
Cash provided by financ-
ing activities......... 401 1,416 12,064 36,454
Adjusted EBITDA......... (94) (1,192) (8,813) (26,168)
Consolidated Balance
Sheet Data:
Cash and cash equiva-
lents.................. 292 772 3,052 5,572
Working capital......... 289 (110) 2,605 (1,292)
Total assets............ 325 2,849 8,007 30,709
Long-term obligations,
less current portion... -- 22 84 7,979
Mandatorily redeemable
securities............. -- -- -- 44,068
Stockholders' equity
(deficit).............. 311 939 3,832 (36,675)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes and other detailed information
regarding Broadview Networks included elsewhere in this prospectus. The
discussion and analysis contains statements of a forward-looking nature
relating to future events or our future financial performance. Actual events or
results may differ materially from such statements. In evaluating these
statements, prospective investors should specifically consider the various
factors identified in this prospectus, including the matters described under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated in the forward-looking statements contained in
this prospectus.
Overview
We currently provide data, voice and internet services to small and medium-
sized businesses and residential customers. We began operations in 1996
reselling, under our own brand name, Bell Atlantic's local dial tone and
regional telecommunications services. In October 1999 we changed our brand name
to Broadview Networks from Community Networks.
In September 1999, in addition to providing our customers with resold
services through Bell Atlantic and other wholesale providers, we began
migrating customers onto our own network, incorporating various owned and
leased network components and operating as a network-based integrated service
provider. As a result, we now provide dialtone and features, such as call
waiting and caller ID, and an array of local, toll, long distance, data and
internet services over our own network. By moving customers onto our own
network, we are able to lower the direct costs of providing our services and
better manage our service offerings and quality of service.
As we implement our business strategy, we intend to continue to expand our
existing network, enhance our software systems, further automate our processes
and increase our sales force. We also intend to continue expanding our service
offerings, including the further deployment of high-speed internet and other
services using DSL technology in order to maintain and enhance our position as
an integrated communications provider.
As we undertake these expansion plans and attempt to grow our revenue base,
we anticipate that we will sustain operating losses and negative cash flows
from operations for the foreseeable future.
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Revenues, net. Net revenues increased 241% to $37.2 million for the year
ended December 31, 1999 from $10.9 million for the year ended December 31,
1998. Customer access lines served increased to 71,965 at December 31, 1999
from 32,832 at December 31, 1998. During 1999, we began to provide service
using our own network. We initiated the first conversion of access lines to our
network in September 1999 and had 8,201 lines on our network at December 31,
1999.
Cost of revenues. Cost of revenues for the year ended December 31, 1999
totaled $34.0 million, an increase of 258% from the $9.5 million incurred in
the corresponding period in 1998. Cost of revenues includes costs of wholesale
purchases of services from Bell Atlantic and other wholesale providers, and
costs of transport, leased telephone line charges, expenses for housing our
network equipment in Bell Atlantic's offices and termination of on-net traffic,
exclusive of depreciation and amortization. We also anticipate that costs of
services as a percentage of revenue will eventually decrease as a result of a
significant increase in the number of access lines converted to our network
services.
20
<PAGE>
Sales and marketing. Sales and marketing expenses increased by 162% to
$11.0 million for the year ended December 31, 1999 from $4.2 million for the
year ended December 31, 1998, and decreased as a percentage of revenues to
29.6% from 38.5% for the corresponding period. Within sales and marketing
expenses, the largest component is personnel and related expenses, which
includes wages and salaries, along with commissions earned by our sales force.
These expenses increased by 820% from 1998 to 1999, reflecting a significant
increase in sales personnel at December 31, 1999 over the prior year. Other
expenses included the costs of opening and maintaining 6 sales offices (4 at
December 31, 1998) in New York and Massachusetts.
We expect to further expand our sales force in 2000. Variable expenses,
including commissions paid to independent marketing representatives, are
expected to increase with future sales growth.
Software development. Software development expenditures increased 50% to
$2.1 million for the year ended December 31, 1999 from $1.4 million for the
year ended December 31, 1998. In 1999, we began to capitalize internal payroll
costs related to improvements to our software under Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Therefore, we have capitalized $0.7 million of these
expenditures. Within software development expenses, the largest component is
personnel and related expenses, which includes wages and salaries. This element
of expense increased to $2.2 million from $1.2 million reflecting an
approximate 75% increase in employees at December 31, 1999 over the prior year.
We expect to continue to develop our software in order to increase its
capabilities and reinforce its reliability.
General and administrative. General and administrative expenses increased
by 254% to $16.3 million for the year ended December 31, 1999 from $4.6 million
for the year ended December 31, 1998. Within general and administrative
expenses, wages and salaries represent the majority of the costs. These
expenses increased by 152% from December 31, 1998 compared to December 31,
1999, reflecting an increase in the number of employees. The majority of the
increase in employees is a result of the significant expansion of our customer
service operation at December 31, 1999 over December 31, 1998. Other expenses
within general and administrative expenses also increased, reflecting our
ongoing growth.
Depreciation and amortization. Depreciation and amortization increased to
$1.1 million for the year ended December 31, 1999 from $0.6 million for the
year ended December 31, 1998, reflecting our network buildout, amortization of
software costs capitalized in connection with the implementation of Statement
of Position 98-1 and capital additions to our internal computer systems. At
December 31, 1999, we have one switch location and 20 colocation facilities in
service. Future depreciation expense will increase as assets related to our
network expansion plans are placed into service.
Non-cash compensation. During 1998 and 1999, we issued stock options and
common stock to employees which were treated for accounting purposes as priced
below the estimated fair value of our common stock at the date of grant or
issuance. We have determined that the non-cash deferred compensation relating
to the stock options granted were $22.3 million and $0.3 million for the years
ended December 31, 1999 and 1998, respectively. The deferred charge is being
amortized over the vesting period of the options, generally four years. In
addition, we issued common stock to certain executives during 1999, for which
non-cash compensation was recognized totalling $8.2 million in 1999. In
addition, in both 1999 and 1998 we recorded $0.5 million of non-cash
compensation arising from the acquisition of the remaining equity interest in
Open Support Systems LLC.
Interest. Interest income, net of interest expense, increased to $0.5
million for the year ended December 31, 1999 from $0.2 million for the year
ended December 31, 1998. This increase resulted
21
<PAGE>
from interest earned on excess invested funds averaging $9.6 million for the
year ended December 31, 1999 increasing from $3.5 million for the year ended
December 31, 1998.
Adjusted EBITDA. Adjusted EBITDA decreased to negative $26.2 million for
the year ended December 31, 1999 from negative $8.8 million for the year ended
December 31, 1998. This decrease was due to increased sales and marketing, the
deployment of our network, and increased operating, general and administrative
expenses as discussed above.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues, net. Net revenues increased 419% to $10.9 million for the year
ended December 31, 1998 from $2.1 million for the year ended December 31, 1997.
Customer access lines in service increased to 32,832 at December 31, 1998 from
5,469 at December 31, 1997.
Cost of revenues. Cost of revenues for the year ended December 31, 1998
totaled $9.5 million, an increase of 428% from $1.8 million incurred for the
year ended December 31, 1997. This increase is due to the increased number of
customer access lines placed in service.
Sales and marketing. Sales and marketing expenses increased by 950% to $4.2
million for the year ended December 31, 1998 from $0.4 million for the year
ended December 31, 1997, and increased as a percentage of revenues to 38.5%
from 19.0% for the corresponding period. Within sales and marketing expenses,
the largest component is personnel and related expenses, which includes wages
and salaries, and sales commissions. These expenses increased by 379% from 1997
to 1998, reflecting a significant increase in sales employees. Other expenses
included agents' commissions, and the costs of opening and maintaining four
sales offices in New York.
Software development. On November 25, 1997, we formed Open Support Systems
LLC, which commenced operations in 1998, to develop operating software for our
company. Within software development expenses, the largest component is
personnel and related expenses, which includes wages and salaries. This element
of expense totalled $1.2 million for the year ended December 31, 1998,
reflecting the establishment of our internal development team.
General and administrative. General and administrative expenses increased
by 360% to $4.6 million for the year ended December 31, 1998 from $1.0 million
for the year ended December 31, 1997. Within general and administrative
expenses, wages and salaries represent the majority of the costs. These
expenses increased by 373% from 1997 to 1998, reflecting an increase in the
number of employees from December 31, 1997 to December 31, 1998. The majority
of the increase was a result of the expansion of customer service personnel in
1998 as compared to 1997. Other expenses within general and administrative
expenses increased as a result of our ongoing growth.
Depreciation and amortization. Depreciation and amortization increased to
$0.6 million for the year ended December 31, 1998 from $0.1 million for the
year ended December 31, 1997, reflecting the expansion of our two call center
facilities in Long Island City, New York and Syracuse, New York and capital
additions to our internal computer systems.
Non-cash compensation. In 1998, we recorded a non-cash compensation charge
of $0.5 million for deferred compensation resulting from the acquisition of the
remaining equity interest in Open Support Systems LLC and for the issuance of
stock options to employees which were treated, for accounting purposes, as
priced below the estimated fair value of our common stock at the date of grant
or issuance.
Interest. Interest income, net of interest expense, increased to $0.2
million for the year ended December 31, 1998. This increase resulted from
interest earned on excess invested funds which averaged $3.5 million during
1998.
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Adjusted EBITDA. Adjusted EBITDA decreased to negative $8.8 million for the
year ended December 31, 1998 from negative $1.2 million for the year ended
December 31, 1997. This decrease was due to increased sales and marketing,
software development and increased operating, general and administrative
expenses discussed above.
Liquidity and Capital Resources
Our operations require substantial capital investment for the acquisition
of telephony equipment and the construction and deployment of our network.
Capital expenditures for network construction were $13.0 million for the year
ended December 31, 1999. In addition, we invested $2.7 million in our call
center facilities and capital additions to internal computer systems during the
same period. We believe that the estimated net proceeds from this offering,
together with our existing assets, anticipated debt and expected revenues
growth, will be sufficient to fund our operations for at least the next 12
months. However, we anticipate the need for substantial additional amounts of
capital to fund the purchase of equipment necessary to continue to expand our
network in existing markets, in addition to the development of new products and
services. We expect to enter several new markets during the year 2000. We
expect to fund this requirement from cash on hand, vendor financing, leasing
arrangements and public or private debt and equity financing.
Since our inception through December 31, 1999, we have raised $4.6 million
from the private sale of common stock, including sales to some of our executive
officers.
In January and September 1998, we issued 3,446,070 and 1,838,799 shares of
Series A and B convertible preferred stock, respectively, for total net
proceeds of $11.9 million. The Series B shares carried warrants to purchase
612,183 shares of common stock for $0.01 per share. These shares and warrants
were sold to private investors.
In April 1999, we issued 6,269,875 shares of Series C mandatorily
redeemable convertible preferred stock at $4.47 per share for net proceeds of
$27.8 million. These shares were sold to private investors. Upon the issuance
of the Series C shares, the holders of the Series B shares exercised 459,139 of
the warrants described above and surrendered the balance of 153,044 warrants
for cancellation.
In February 2000, we issued 6,006,959 shares of Series D redeemable
convertible preferred stock at $4.66 per share for net proceeds of $28.0
million. These shares were sold to private investors.
In October 1999, we entered into a vendor credit facility to finance the
purchase of telecommunication equipment, related software and other associated
expenditures. The facility provides for an aggregate principal amount of $36.0
million, available for drawing on or before September 30, 2001. To secure the
loans, we have granted the lender a first priority collateralized interest in
the assets acquired with the loans. Loans must be repaid over a five-year
period from the date of the borrowing. As of December 31, 1999, we had $6.9
million outstanding under this credit facility.
We are negotiating with a number of financial institutions for a senior
credit facility in an aggregate principal amount of $125 - $175 million. It is
expected that such a facility, if obtained, would incorporate or replace our
vendor credit facility. We have not entered into an agreement or executed a
letter of intent with any of these institutions, and there is no guarantee that
we will do so in the future.
The cost of deploying our network will depend on a variety of factors,
including our ability to meet our deployment schedules, negotiate favorable
prices for the purchase of additional equipment, the nature and penetration of
new services that we may offer, regulatory changes and changes in technology.
As a result, actual costs and revenues will vary from expected amounts,
possibly to a material degree, and these variations are likely to affect our
future capital requirements.
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Accordingly, we cannot guarantee that our actual capital requirements will
not exceed the anticipated amounts described above. We cannot guarantee that we
will be successful in raising sufficient additional capital at all or on terms
acceptable to us.
Impact of the Year 2000 Issue
The year 2000 issue generally describes the various problems that have
resulted or may result from the improper processing of dates and date-sensitive
calculations by computers and other equipment as a result of computer hardware
and software using two digits to identify the year in a date. Those computers
and software need to be upgraded or replaced to accept four digit dates to
distinguish dates in the 21st century from dates in the 20th century. Even
after January 1, 2000, the problem could result in system failures or
miscalculations and cause disruptions in operations, including, among other
possible occurrences, the inability to process transactions, maintain proper
billing records, send invoices, provide data and voice communications services
or engage in similar normal business activities.
We have reviewed our computer systems to identify those areas that could be
affected by the year 2000 issue. Based on our assessments to date, we have not
experienced and believe that we will not experience any material disruption in
internal systems or information processing as a result of the year 2000 issue.
We may identify a significant internal or external year 2000 issue in the
future which, if not remediated in a timely manner, could have a material
adverse effect on our business, financial condition and results of operations.
If the systems of any of our customers and suppliers, particularly the ILECs,
long distance carriers and others on whose services we depend or with whom our
systems interface were to experience disruptions as a result of the year 2000
issue, it could have a material adverse effect on our business, financial
condition, and results of operations.
We have not incurred any significant costs in identifying or addressing
year 2000 issues other than the opportunity cost of the time spent by our
personnel. We do not anticipate any significant further costs in identifying or
addressing year 2000 issues.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS 133 is effective for all
fiscal quarters or fiscal years beginning after June 15, 2000, as amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133," issued in June 1999.
We do not expect the adoption of this statement to have a significant impact on
our results of operations, cash flows or financial position.
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BUSINESS
The following discussion contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about us and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from the forward-looking statements as a
result of various factors, including those described in the "Risk Factors"
section and elsewhere in this prospectus. In addition, the following discussion
includes market projections from industry sources which are based on data,
assumptions and methodologies compiled and applied by these sources and may not
be achieved. We assume no obligation to update any forward-looking statements
for any reason.
We are a holding company whose main assets are our wholly-owned
subsidiaries, Broadview Networks, Inc., an electronically integrated
communications provider and our main operating company, and Open Support
Systems LLC, the entity which has developed and owns the OPENnet software used
by Broadview Networks, Inc. The following discussion relates to the operations
of Broadview Networks, Inc. and Open Support Systems LLC, taken together as a
whole.
Overview
We are an electronically integrated communications provider, or e-ICP, a
new type of competitive communications carrier that can electronically connect
with the information systems of Bell Atlantic and other key suppliers, then
automatically process data from these suppliers and incorporate it into its own
network. We have developed and implemented unique and scalable enterprise
management systems and software that are electronically integrated with the
systems of Bell Atlantic and other key suppliers. Our services include high-
speed internet access and services using digital subscriber line, or DSL,
technology, data services, and local, long-distance and international voice
services. We currently market bundles of these services to small and medium-
sized businesses, small office/home office customers and communications-
intensive residential consumers in the northeastern United States.
Our goals include increasing our revenues and market share by acquiring
customers quickly and efficiently, lowering our operating costs through further
automation and integration with our key suppliers and customers, and achieving
a higher return on capital than typically experienced in our industry by
deploying our network only after we have acquired a customer base in a market.
We plan to do this by leveraging our software systems, which we call OPENnet,
and our highly-automated business processes, which include SmarterAcquire,
SmarterBuild and SmarterCare, collectively referred to as Smart/3/.
In October 1996, we became the first integrated communications provider to
establish information systems capable of communicating with Bell Atlantic's
computer systems to execute multiple tasks, including retrieving customer
information, placing and tracking orders, testing customer lines and billing.
We believe that this level of electronic integration represents a significant
improvement over the electronic bonding used by traditional CLECs.
We initially provide our customers with services by reselling local, long
distance and data services of Bell Atlantic and others. This customer
acquisition process generally allows us to provide services within five
business days of taking an order. In comparison, we believe our competitors,
who put new customers directly onto their networks, typically experience a
delay of 20-30 business days in providing services.
We are rapidly deploying our network. Our network equipment is installed
and operational in 21 colocations, which are locations within the central
offices of traditional telephone companies. We expect to have approximately 100
colocations operational by the end of 2000 and approximately 200
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by the end of 2001. After we deploy our network equipment in a colocation, we
migrate our customers' lines in bulk from the Bell Atlantic network onto our
own using a highly-automated, efficient process we developed. We believe our
unique high-volume migration process reduces labor, time, cost, errors and
service disruptions compared to companies who connect access lines to their
networks one at a time.
From the time we initially provide a customer with service, we provide
personalized, real time customer care. Each customer can interact with one of
our customer care associates, who can assist customers with a wide range of
functions, including service and feature ordering, billing, service inquiry and
account administration, with a unified look and feel, regardless of whether
their services are provided using our network or the Bell Atlantic network. We
believe that our enhanced capabilities allow us to provide a superior customer
care experience, and will help us increase customer retention and attract new
customers.
Despite our limited operating history, as of December 31, 1999, we had
approximately 39,000 customers with approximately 72,000 access lines,
primarily in New York City, Long Island, Buffalo, Syracuse and Albany, New
York, and Boston, Massachusetts. On that date, we were marketing our services
in over 80 central offices and had our network equipment deployed in 20 of
those offices. In 1999, our revenues were $37.2 million, compared with revenues
of $10.9 million in 1998. As we grow and expand our network, we expect to incur
significant expenditures as well as continued operating losses and negative
cash flow for the next few years.
Our Market Opportunity
The deregulation of the telecommunications industry and the surging demand
for internet and related data transmission services have created a significant
market opportunity for competitive providers of voice and data
telecommunications services. According to the FCC, the U.S. local and long
distance telecommunications market had revenues of approximately $166 billion
in 1998, $41 billion of which were generated within the Bell Atlantic region.
In addition, International Data Corporation, or IDC, has projected the U.S.
business market for DSL will reach $5.7 billion by 2003, of which we estimate
24%, or $1.4 billion, will be generated within the Bell Atlantic region.
We believe that within the telecommunications market our most attractive
opportunity consists of small and medium-sized businesses. Within the Bell
Atlantic region, there are approximately 1.8 million of these businesses with a
total of approximately 8 million lines, according to IDC and Bell Atlantic,
respectively. IDC has also reported that only 52% of small to medium-sized
businesses have internet access and 86% of these companies utilize dial-up
connections. We believe there is an opportunity to increase subscriptions to
the internet and high-speed data services such as DSL.
Additionally, census data shows that there are approximately 63 million
people living in the Bell Atlantic region, which contains 4 of 10 states
reporting the highest median personal income. We estimate that multi-line,
small office/home office, and other communications-intensive households
comprise approximately 35% of the total residential line base and have higher
than average telecommunications spending patterns.
We believe that these customers are underserved by incumbent carriers and
have significant unmet needs for simplicity and value. To meet these customers'
needs, we plan to offer a full range of bundled data and voice services with
attributes that are more attractive than traditional alternatives, as well as a
single point of contact for high-quality, personalized customer care.
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Business Strategy
The key elements of our business strategy are:
Focus on small and medium-sized businesses
Small and medium-sized businesses have historically been underserved by
traditional local or long distance providers, who we believe have generally
found that it is not cost-effective to dedicate a significant amount of
resources to them. We believe that our OPENnet systems and Smart/3/ business
processes will enable us to achieve the efficiencies in sales, provisioning,
network deployment and customer care that are required to serve them
profitably.
In order to obtain a full package of internet, data and voice services, our
target customers have generally had to purchase services from several different
providers, internally integrate the services and receive and reconcile bills
from each provider. We use a dedicated sales force to target small and medium-
sized businesses, who have a need for simplicity and one-stop shopping. To meet
their needs, we combine our data and voice applications into integrated service
bundles invoiced on a single bill.
Rapidly acquire customers and provide services with SmarterAcquire
Our strategy for acquiring new customers and expanding our market share is
designed to generate revenues from targeted customers before we deploy
significant network capital in those markets. We accomplish this by entering a
specific geographic market and initially reselling Bell Atlantic's services to
our new customers. After aggregating a sufficient number of geographically
concentrated customers through resale to justify the capital investment, we
deploy our own network equipment in colocation facilities in the Bell Atlantic
central office serving the applicable geographic area. We then migrate the
customers in bulk onto our network with minimal disruption.
By initially providing service by reselling Bell Atlantic's services prior
to migrating customers onto our network, we typically generate revenues from
new customers within five business days of taking a customer's order. As a
result, we believe we lose significantly fewer customers than our competitors
from the time we write a new order to the time we bring the customers onto our
network. In addition to the revenue benefits, we believe this strategy allows
us to attract and retain high-quality, motivated sales professionals, because
they are able to receive commissions sooner, and on a greater percentage of
their customers' orders while spending less time rescheduling the initiation of
services to a customer and more time seeking to acquire additional accounts.
Furthermore, our SmarterAcquire strategy enables us to take advantage of
the pre-existing switching and transport network of Bell Atlantic. This
minimizes our need to spend capital in advance of orders and reduces our risk
of inefficient capital investments or stranded plant.
Increasingly focus on data services
We have recently begun commercial introduction of DSL-based services in New
York, augmenting our DSL-trained sales force with data sales specialists and
installing high-speed data switches. We will be building a systems integration
and vendor testing laboratory to analyze vendors' equipment and further refine
our network architecture prior to putting new services and equipment into
commercial production. Over time, we expect that our service mix and revenue
stream will increasingly shift to data and internet related services, and
expect that our network will seamlessly integrate data and voice traffic.
Foster customer loyalty by providing SmarterCare
Using OPENnet, we provide our customers with a single point of contact with
a customer care associate, 24 hours a day, seven days a week. This enables us
to better meet the needs of our
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customers and increases customer retention. In addition, our SmarterCare
management process is designed to present customers with integrated ordering,
provisioning, billing and support functions that have a unified look and feel,
regardless of whether we are currently providing the customer with service
through our network or through resold Bell Atlantic services.
We are in the process of enhancing OPENnet to permit customers to interact
directly with our systems online. This will give them a choice of self-service
over the internet or personalized attention from one of our customer care
associates.
SmarterBuild our state of the art, scalable network
In building our network, we use a success-based capital investment strategy
of deploying network assets in a location only after we have acquired a
customer base. We own the intelligent components of our network, such as
switches, network electronics and software, but lease the readily-available
transport elements. We believe that this strategy provides us with significant
cost and time-to-market advantages. By owning our switches, we can configure
our network to provide high performance, high reliability and cost-effective
solutions for our customers' needs. By leasing our transport lines, we can
reduce up-front capital expenditures, rapidly enter new markets, and generate
positive cash flow more quickly. We also believe that leasing telephone lines
from an ILEC permits us to offer service ubiquitously within that ILEC's
central office, which leads to a larger addressable market than business models
which are based on building dedicated facilities to specific customers.
As we deploy our network, we transfer customer lines in bulk to our network
from Bell Atlantic's using a highly automated, efficient process that has
allowed us to achieve a successful transfer rate of over 90%, which we believe
is significantly higher than our competitors. Further, in those instances where
a successful transfer does not occur, we are able to quickly address the issue
because the lines are under our control. We believe this is a significant
competitive advantage given that a failure can cause a customer to lose service
for hours or even days. We are able to maintain our success rate because of our
high degree of integration with Bell Atlantic, which allows us to pre-test the
customer lines, isolate any potential problems, then do the transfers in a
highly-automated fashion. By migrating customers onto our network in bulk, we
also minimize the costs, and greatly reduce the labor, compared to other
companies who transfer customers one line at a time.
Our integrated network is designed to be flexible to support the rapid and
cost-effective introduction of new services and technologies. We have also
designed our network to be scalable; it can be replicated rapidly as we enter
new markets.
Capture market share through geographic expansion
We currently offer our services to small and medium-sized businesses and
communications-intensive households in New York and Massachusetts. We intend to
increase our current customer base by expanding our operations into other
markets within the Bell Atlantic region as well as into selected other regions.
We believe that the Northeast and mid-Atlantic regions are particularly
attractive due to a number of factors, including the population density and the
disproportional amount of telecommunications traffic that either originates,
terminates or transits within this area. We may also expand our operations
through acquisitions or strategic alliances with other communications
providers, though we have no current plans in this regard.
Leverage the experience of our management team
Our management team has significant experience in the communications
industry and software development in general, and, in particular, in the
critical functions of network operations and
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development, sales and marketing, back office and systems development, high-
volume transactions, finance and customer service. Our eight executive
officers have an average of 18 years of experience in the communications
industry, and are former executives of companies including Bell Atlantic,
Teleport Communications Group, Covad, MFS Communications, AT&T and MCI. We
believe that the quality and experience of our management team will be
critical factors in the implementation of our growth strategy.
Target Markets
We primarily target the following three areas within the
telecommunications market:
Small businesses (1 to 20 lines) spending up to $1,500 a month on
communications
Small businesses are receptive to data and voice services that are simple
to understand and use and that save both time and money. They also prefer to
buy bundles of integrated services to reduce their number of vendors and
achieve better service levels. The needs of small businesses also generally
include fast access to emerging technologies, account management and
integrated solutions. Small business accounts primarily buy basic voice
services as well as high-speed internet access and applications. We believe
that this category will be our largest customer group.
Medium-sized businesses (21 to 150 lines) spending up to $10,000 a month
on communications
The needs of medium-sized businesses typically include fast access to new
technology, account management expertise, customized data and voice solutions,
and easy access to customer service and self-service tools for managing their
communications. These customers prefer bundles of integrated services and
fewer vendors, simpler invoices and better account management. Medium-sized
businesses typically purchase data connectivity as well as basic voice
services, network applications and high-speed internet access and
applications.
Communications-intensive households spending up to $200 a month on
communications
Small office/home office users and communications-intensive households buy
a range of voice services and features and internet services, including dial-
up access and broadband applications utilizing DSL technology.
Service Offerings
Our service offerings are being expanded to include a complete suite of
data, internet and voice applications. We have recently begun our introduction
of DSL-based services in New York, enabling us to offer a fully-integrated
bundle of voice and high-speed data access and broadband applications. While
today most of our customers are primarily voice users, we believe that with
the increasing demand for new applications such as internet access and e-
commerce, and the growing availability of broadband access as a result of DSL
technologies, over time many of our customers will increasingly shift to data
services, including voice over DSL and voice over the internet. As a result,
we anticipate that our product mix and revenue stream will increasingly shift
to these areas as well.
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Our current and planned service offerings include the following:
<TABLE>
<S> <C> <C>
Segment Current Service Offerings Planned Service Offerings
Small and . Local Dial Tone . Web-based Self-Service
medium- . Custom Calling Features . Unified Messaging
sized businesses . Regional Toll Calls . Follow Me Services
. Long Distance . Conference Calling
. Toll Free Service . Prepaid Calling Cards
. Calling Cards . Virtual Private Networks
. Internet Service via DSL . Firewalls
. Dial-Up Internet Service . Transparent LAN Services
. Basic Web Hosting . Intranets and Application Hosting
. Virtual Key Service (City-Wide Centrex)
. Video Conferencing
. Advanced Web Hosting
Communications- . Local Dial Tone . Web-based Self-Service
intensive . Custom Calling Features . Prepaid Calling Cards
residential . Regional Toll Calls . Remote Office Connections
customers . Long Distance
. Internet Service via DSL
. Dial-Up Internet Service
. Personal Web Page Hosting
</TABLE>
Our pricing is designed to sell larger bundles of our more profitable
services. We provide incentives for longer contract terms and larger service
bundles. For example, a customer who signs a 12-month contract currently
receives a credit in the 13th month equal to their average monthly usage in the
preceding 12 months, and a residential customer who orders a bundle of local
and long distance service pays 10% less on recurring, monthly charges than
customers who take local service only. Customers who are on our network are
given incentives to try new features and network services. Communications-
intensive households are offered all-in-one, flat-priced bundles that maximize
value. We also have various customer retention programs.
Sales, Marketing and Customer Care
Sales channels
Our sales channels are tailored to the particular characteristics of each
of our targeted markets. We reach medium-sized businesses primarily through our
direct sales force of 128 account executives. Because these customers are
somewhat larger and often have more complex data networking needs than our
other customers, we are building a team of dedicated data sales specialists.
These specialists focus on the needs of the more data-intensive accounts within
this market. We reach small businesses through our direct sales force, our
telemarketing operations, as well as through independent channels such as our
independent agent network and our affiliate lead generation programs. Finally,
we reach communications-intensive households through targeted direct mail and
telemarketing campaigns, affinity marketing and traditional and on-line
advertising.
Direct sales channels. Our direct sales force markets our integrated
communications bundles directly to end users. We generally recruit and hire
direct sales representatives and account executives who have several years
experience in the telecommunications industry, typically with other CLECs and
integrated service providers.
Direct sales representatives are compensated on a salary and commission
basis that rewards meeting revenue and line acquisition goals and customer
longevity. Our compensation structure provides significant incentives for
selling larger bundles of higher-margin services provided over our network.
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Since we have the ability to provide services to new customers in a matter
of days, we believe our sales force receives their commissions sooner and are
more productive because they spend less time rescheduling the provisioning of
services to a customer and more time seeking to acquire additional lines. As a
result, we believe we have a competitive advantage in our ability to attract
and retain the most productive and experienced communications sales
professionals. While we believe CLECs typically have large provisioning
backlogs and high sales force turnover, we have minimal provisioning backlogs
and, over the last year, have had less than 5% annual voluntary sales force
turnover.
Our direct sales force accounted for 50% of the lines we acquired in 1998
and 62% of the lines we acquired in 1999.
Indirect sales channels. We operate indirect sales channels in which we
market to end users through authorized agents, independent sales
representatives, resellers, associations and affinity groups. We generally
provide services under our own brand name to end users acquired for us by an
agent. We intend to offer unbranded and wholesale services to other
telecommunications companies, including value-added resellers, long distance
carriers, CLECs, internet service providers, wireless carriers, foreign
carriers desiring a presence in the U.S. market, out-of-region Regional Bell
Operating Companies and others that may incorporate our services with other
products and services for resale to various market segments. We are in
discussions with potential wholesale customers regarding possible commercial
and strategic relationships, which could potentially include our providing
telecommunications services as well as outsourcing the capabilities of our
OPENnet systems. We believe that providing wholesale services will allow us to
take full advantage of the scalability of our systems and processes.
In addition to traditional telecommunications agents, we make extensive use
of our affinity relationships with charitable organizations and professional
associations. We market through these organizations through a combination of
direct marketing and joint marketing designed to generate direct response
and/or leads for our account executives. Our Community Partnership program
includes approximately 600 organizations. This program generates sales leads
and we believe it improves our customer retention.
Indirect sales through agents, affinity and telemarketing agents accounted
for approximately 29% of our lines in both 1998 and 1999. Other channels,
including direct mail and direct response accounted for 21% of our lines in
1998 and 9% of our lines in 1999.
Marketing and advertising
In the competitive market for telecommunications services, speed to market
with new services, bundles, price plans and products are critical. We have
unified databases which are accessed by our billing and customer care system,
which enables us to bring new plans, products and promotions to market in a
matter of days.
Our marketing and advertising support our direct and indirect sales
channels and generate direct response sales of communications-intensive
residential households. Through direct mail, telemarketing, print, radio and
outdoor advertising, we seek to generate brand awareness as well as inbound
mail and telemarketing leads and orders. Our web site is another channel
through which we seek to generate commercial and residential leads and, in the
future, orders.
We market jointly with a number of market partners, including Nortel
Networks, which provides us with direct marketing support to co-market our
services that are supported by their voice and data switching equipment. We
have begun marketing efforts in support of the roll out of our integrated voice
and high-speed data services, including our DSL-based services.
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Customer care
Using our SmarterCare processes, we aim to provide a superior level of
convenience and customer service in order to increase our customer retention.
Key elements of our service are an integrated billing platform, a simple but
comprehensive billing statement and comprehensive service from our customer
care associates and account managers. Our OPENnet software is designed to be
user-friendly and enable one of our customer care associates to perform all
customer service functions, including ordering services and features, account
administration, billing inquiries, and service calls. Our competitors typically
require customers to interact with different departments, primarily because of
organizational, system or software limitations. We believe that having a single
employee perform all customer service functions results in a more timely,
personalized customer service experience for our customers.
We operate two call centers staffed with fully-trained customer care
associates. Customer service is available 24 hours a day, seven days a week.
Customers with 10 or more lines are assigned a specific account manager and
given that person's name and direct, toll-free phone number. All of our
customer care associates and account managers receive three weeks of initial
in-house training followed by ongoing training.
Customer retention responsibility initially resides with our sales force,
then is transferred to our customer care associates.
We are currently developing the ability to extend OPENnet into web-based
interactions with customers. This would enable us to provide our customers with
a full range of web-based, self-service capabilities, including the ability to
see and pay their bills, add or subtract a service feature and initiate service
calls.
Enterprise Management System (OPENnet ) and Business Processes (Smart/3/)
Our business model is based on the benefits we obtain from the combination
of our OPENnet software and Smart/3/ business processes.
OPENnet software systems
In October 1996, we became the first integrated communications provider to
establish information systems capable of communicating with Bell Atlantic's
information systems for multiple tasks and on multiple levels.
Today, through our OPENnet software, we have a large number of interfaces
with the legacy systems of Bell Atlantic. These interfaces allow us to
electronically retrieve information contained in Bell Atlantic's systems and
automatically incorporate it directly into our acquisition, billing and
customer care systems. This minimizes the manual work required in our customer
acquisition process, which reduces our labor and order processing costs and
significantly reduces errors.
OPENnet electronically retrieves a customer service record from Bell
Atlantic, automatically translates Bell Atlantic's service order codes into
English descriptions of features and services, automatically builds customer
records in our systems, initiates services on the Bell Atlantic network, and
submits orders to Bell Atlantic to move customers from Bell Atlantic's switches
onto our own. Through real-time, electronically integrated transactions with
Bell Atlantic, including checking and reserving installation dispatch times,
diagnostic testing of a customer line and obtaining new telephone numbers, we
are able to take advantage of Bell Atlantic's existing systems and network
while at the same time maintaining our distinct customer service experience.
OPENnet also automatically handles many back office functions, including
nearly all aspects of generating our bills, tracking and invoicing all forms of
service and updating our accounts receivable. It processes usage data from
other carriers and from our own switching platforms and rates calls, calculates
taxes, applies any desired pricing plans or packaging plans and incorporates
local, long
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distance, data and internet services onto a single monthly bill. In addition,
OPENnet allows one of our customer care associates to view a customer's bill
and apply payments and credits in real-time, while interacting with the
customer, and allows us to rapidly generate and modify our marketing offers and
service packages.
We believe our OPENnet system is flexible and can be readily modified as we
introduce new services and enter new markets.
Smart/3/ business processes
Our SmarterAcquire, SmarterBuild and SmarterCare, collectively referred to
as Smart/3/, business processes allow us to exploit the strengths of the
OPENnet software. The mechanisms by which these business processes have
automated and integrated the steps involved in acquiring new customers,
bringing those customers onto our network and performing customer care are
described below:
SmarterAcquire. Our direct sales force sells our services within a
prescribed geographic area surrounding a Bell Atlantic central office. Using
OPENnet, we initially provide new customers with service by reselling Bell
Atlantic services. We accomplish this by electronically retrieving Bell
Atlantic's customer service record, which contains the customer's service and
billing profile, and electronically incorporating it into our systems. This
automatically establishes our new customer's account and billing profile
without manual intervention. OPENnet also automatically generates the resale
order to Bell Atlantic and initiates billing the customer once Bell Atlantic
sends the completion of the resale order.
SmarterBuild. After we have accumulated a large number of resale customers
within a designated area, we utilize our OPENnet system and automated processes
to migrate these customers in groups of several hundred per colocation, often
doing several colocations simultaneously, compared with those who connect
access lines to their network one at a time. This has enabled us to achieve a
successful transfer rate of over 90%.
Prior to migrating a customer onto our network, we electronically perform
several tests across large groups of lines and identify those likely to have a
problem during the transfer process. We then remove these lines from the batch
scheduled to be transferred and address them individually, clearing the problem
before the next scheduled batch migration. We also automatically generate and
electronically process leased telephone line orders to Bell Atlantic, number
transfer instructions to the number portability administration center, switch
provisioning instructions to our switch and provide updates to emergency 911
bureaus.
This combination of electronic integration, pre-testing and high volume
coordinated cutovers eliminates the manual processing of orders, and greatly
reduces the physical work and the errors associated with migrating new
customers onto our own switching facilities. This process also helps us avoid
customer outages during the transfer. Outages are a prevalent problem in the
industry today and often lead to customer dissatisfaction and canceled orders.
SmarterCare. Using our SmarterCare processes, we aim to provide a superior
level of convenience and customer service in order to increase our customer
retention. Key elements of our service are an integrated billing platform, a
simple but comprehensive billing statement and comprehensive care from our
customer care associates and account managers. Our OPENnet software is designed
to be user-friendly and enable one of our customer care associates to perform
all customer service functions, including sales, ordering, account management,
billing inquiries and repair, while interacting with the customer. Our customer
care associates can provide equivalent customer service whether the customer is
on our network or provided with resold service using Bell Atlantic's network.
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Network
Integrated network architecture
We provide services to our customers over a single integrated network that
supports local, long distance and high-speed data and internet services. Our
integrated network architecture includes customer premise equipment, leased
telephone lines, colocations, network equipment required to direct telephone
calls and data traffic, operating and application software and interoffice and
long distance transport facilities. We believe that the further integration of
our local, long distance and data networks and the adoption of emerging
technologies, particularly voice over DSL, will significantly reduce our cost
of providing a bundled service offering.
It is our strategy to own the intelligent and value-added components of our
network such as our hybrid voice and data switches while we lease readily
available facilities such as telephone lines and interoffice and long distance
transmission facilities. We are in the process of deploying DSL technology to
increase the data carrying capacity and bandwidth of the telephone lines we
lease, transforming them from narrowband to broadband. This will enable us to
provide a range of new services, including various high-speed data services and
internet capabilities.
Unlike other CLECs, we are able, through our Smart/3/ processes supported
by OPENnet, to aggregate new customers in an ILEC central office by initially
providing them with Bell Atlantic's resold services, and then migrate those
customers in bulk onto our network in a streamlined, cost-effective and
efficient process. This enables us to build up a customer base and revenue
stream before migrating this traffic onto our network just as the network
becomes ready, giving us faster utilization of our capital dollars.
Accessing the customer through leased telephone lines
Our integrated network begins with our customers. We connect them by
leasing the ILEC's telephone lines that run into homes and offices. Through our
processes, we are able to rapidly move the leased telephone lines from Bell
Atlantic's switch to our switch using our colocation equipment. By doing so, we
are able to avoid the capital outlay, operating expenses and delay associated
with deploying our own facilities to our customers' premises. To increase the
bandwidth of these lines from narrowband to broadband, we deploy DSL technology
at both ends of the lines -- at our colocation site and by placing a DSL modem
at the customer's location. By utilizing leased telephone lines, we also obtain
access and termination revenues from long distance carriers as if we owned the
lines.
To enable us to operate as a local carrier, and to send calls to and from
customers connected to Bell Atlantic's network, we have entered into two
interconnection agreements with Bell Atlantic covering the New York and
Massachusetts markets and plan to enter into additional agreements with Bell
Atlantic and ILECs in other markets as the deployment of our network
progresses. In addition to establishing the terms for network interconnection,
these agreements provide the terms under which we may initially resell Bell
Atlantic service to our customers. Our agreement covering the New York market
expired December 31, 1999 and was automatically renewed according to its terms.
It remains in effect until terminated by either party after 90 days written
notice to the other. Rates for Bell Atlantic's telecommunications services are
based on the interconnection agreement and applicable federal and state
tariffs. Our agreement covering the Massachusetts market expires April 12,
2001, unless either party requests negotiation prior to that time, in which
case the agreement would remain in effect until a new agreement is executed or
an arbitration decision is entered. Rates are also based on the interconnection
agreement and applicable federal and state tariffs. If these agreements are
terminated, Bell Atlantic is obligated to continue provide us with access to
its network but may do so under a new agreement. We are in the process of
securing similar agreements with Bell Atlantic for Pennsylvania, New Jersey,
Virginia, Maryland, Rhode Island, Delaware, Washington, D.C. and New Hampshire.
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Our telephone lines are leased from Bell Atlantic in New York under tariff
regulations and in Massachusetts under the terms of our interconnection
agreement with Bell Atlantic.
Colocation facilities
Each leased telephone line we deploy is a direct connection from our
customer to one of our colocation sites located in the central office of the
ILEC. Within each colocation site, we have deployed or are in the process of
deploying Nortel's digital loop carrier system, which converts the analog voice
signal to digital data signals and compresses them for transmission to digital
central office switches, to transmit telephone calls. We have also deployed or
are deploying DSLAMS, which are devices that combine the data streams from many
high speed DSL telephone lines into a higher speed data stream destined for the
internet or other data networks to support our high-speed DSL service
offerings. This colocation architecture supports integrated data and voice
services and can be extended to support emerging applications as customer
requirements dictate.
We use Nortel Network's AccessNode equipment and we are an inaugural user
of Nortel's Universal Edge 9000 product line, which provides both voice and
data access and can be integrated with virtually any manufacturer's digital
switch. Since this equipment handles both traditional voice services and newer
DSL-type services, we are able to provide and administer these services to our
customers without having to incur the cost of installing separate systems.
Our network equipment is installed and operational in 21 colocations. We
expect to have approximately 100 operational colocations by the end of 2000 and
approximately 200 by the end of 2001. Until we have deployed the necessary
colocation facilities in a specific geographical region, our DSL services may
utilize the underlying network of another DSL provider.
Switches
We use Nortel DMS500 hybrid local and long distance switches. We have
deployed switches in Syracuse and New York City. We are installing Nortel
DMS500 digital switches in Boston and in the Philadelphia area. We anticipate
the Boston switch will be operational in the second quarter of 2000 and the
Philadelphia switch will be operational by the third quarter of 2000. Each
Nortel DMS500 switch acts as a centralized switching node connected to multiple
colocations and may service one or more metropolitan areas. Compared to the
more traditional network architecture, which requires a switch dedicated to
each metropolitan area, we believe our network architecture results in a more
efficient use of capital. In addition, each of these centralized switching
nodes serves as an interconnection and concentration point between our DSL and
data network and the public internet.
In conjunction with our deployment of DSL-based services, we are also
installing high-speed data switches known as ATM switches, which support
multiservice traffic switching and routing in each of our switching offices.
Transport facilities
We lease the broadband facilities that connect our colocations and switches
from both incumbent and competitive carriers using high capacity transmission
lines.
We resell the long distance services of Global Crossing, formerly known as
Frontier Corporation, including international call origination and termination
services, 800 services, calling cards, long distance directory assistance and
operator services. Our contract with Global Crossing expires in April 2001.
Signaling System 7
The SS-7 signaling system reduces the time it takes to connect a call,
thereby enhancing overall network efficiencies and increased customer
satisfaction. SS-7 allows customers to keep their
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telephone number when they transfer phone from one service provider to another,
which makes it easier to migrate customers to our network and permits the use
of all calling features. It also enables us to offer advanced customer features
like Enhanced 800 service and Caller ID With Name. We use Bell Atlantic's SS-7
network and services.
Network management and operational support
We monitor our network from our New York City switching center and plan to
build a national network management center beginning in the first half of 2000.
This center is intended to have multiple functions. It will provide continuous
surveillance of all switching, colocation equipment and high-speed data
services equipment to ensure proper and efficient network function. When a
network alarm is received from any piece of equipment within our network, the
center will respond to isolate the cause and either switch to backup equipment
or dispatch technical assistance to the site. It is our goal to remedy any
network problems before they affect a customer's service. The network
management center will also be responsible for quality acceptance of all new
network locations being activated and for services being turned-up for
customers. We expect our network management center to become operational in the
third quarter of 2000.
Internet services
Consistent with our Smart/3/ business strategy, we construct, own and
operate those elements of our internet network that contain the intelligent
components and offer enhanced services to our customers. Our data centers
contain the various servers that provide the security, user authentication, e-
mail, domain-name translations, accounting, internet access, routing, web
hosting and other functions that are fundamental to serving high-speed and
dial-up internet customers.
Our dial-up internet access is provided by our own facilities, by AGIS
under a three-year contract that expires in July 2002 and by Net Access
Corporation under a month to month contract that is terminable by us upon 45
days written notice. AGIS and Net Access Corporation support dial-up access to
the internet nationwide. The minimum monthly cost of our contract with AGIS is
$17,100. The monthly cost of our contract with Net Access Corporation is based
on the volume of customers who access the service. There is no minimum
commitment. Our gateway to the internet as well as our internet addressing is
provided by Globix under a two-year contract that expires in September 2001.
Network security
Our network employs an authorized access architecture which utilizes an
automatic number identification security screening to ensure that only those
users who have subscribed to our services and have satisfied our credit and
provisioning criteria are allowed access to the network. We believe that this
architecture allows us to minimize fraud in a manner that is invisible to the
customer.
Anticipated network expansion
We plan to continue significant network expansion. We expect to obtain
additional colocations and to deploy switches and transport facilities in order
to support our strategies of capturing additional market share, expanding
geographically and continuing to move our customers' traffic onto our network.
Expansion of our network-based infrastructure with more colocations, voice and
data switches and DSL equipment will increase the proportion of our customer
traffic that is originated or terminated on our network, which we believe will
result in higher long-term operating margins and greater control over our
network operations.
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Competition
Our industry is highly competitive. We face a variety of existing and
potential competitors, many of whom aspire to offer multiple services in
integrated or non-integrated bundles or are potential replacements for our land
line-based services. These competitors include:
. The ILECs in our current and target markets, who aspire to become all
distance carriers;
. Long distance carriers who aspire to become all distance carriers;
. Other facility and non-facility-based voice and data CLECs;
. New market entrants, including cable television companies, electric
utilities, fixed wireless-based providers (microwave, milliwave),
satellite-based operators and municipalities;
. Mobile voice and data wireless carriers, including cellular, PCS, and
paging companies; and
. Internet service providers who aspire to become all service carriers.
Our primary competitor in our existing markets, and most of our targeted
markets in the northeastern and mid-Atlantic United States, is Bell Atlantic.
If we expand beyond the Bell Atlantic region, our primary competitor in each of
those other markets will be another ILEC. Examples include BellSouth; GTE,
which has agreed to merge with Bell Atlantic; SBC Communications, which does
business as Ameritech, Southwestern Bell, Pacific Bell and Southern New England
Telephone; and U S WEST, which has agreed to merge with Qwest Communications.
On December 22, 1999, the FCC granted Bell Atlantic's application to offer
long distance services in New York. The FCC's approval was based on its
conclusion that Bell Atlantic had taken the required steps under the
Telecommunication Act to open the local phone market to competitors. AT&T and
Covad Communications have asked the U.S. Court of Appeals for the District of
Columbia to overturn the FCC decision on the grounds that Bell Atlantic has
not, in fact, sufficiently opened the local phone market to rivals. While the
case is pending before the Court of Appeals, Bell Atlantic will continue to
offer long distance services.
On March 9, 2000, following a month long investigation by the FCC into Bell
Atlantic's loss or mishandling of orders electronically submitted to the
company by Bell Atlantic's local service competitors, the FCC and Bell Atlantic
entered into a consent decree. Under the consent decree, Bell Atlantic agreed
to make a voluntary payment to the U.S. Treasury of $3.0 million, and
additional voluntary payments of up to $24.0 million if it fails to improve its
performance in processing orders.
The FCC's approval of Bell Atlantic's offering long distance services in
New York represents the first time since the breakup of AT&T that a Regional
Bell Operating Company is able to provide its in-region customers with both
local and long distance phone service. Non-Bell ILECs that were never part of
AT&T, such as GTE, are already allowed to offer long distance services without
having to prove that they have opened their local markets. Since Bell
Atlantic's bundle of local and long distance services will be in direct
competition with our core voice services, the FCC's approval increases the
level of competition we face in New York, our primary market. In addition, Bell
Atlantic is currently seeking approval to offer long distance services in
Massachusetts and is expected to seek approval in other states, including
Pennsylvania and New Jersey. In January 2000, SBC Communications filed an
application with the FCC to provide long distance services in Texas. The FCC
has 90 days to approve or deny SBC's application. Other Regional Bell Operating
Companies are expected to file similar applications for other states. If the
FCC approves these applications, the competition we face in the states in which
we operate or plan to operate will also increase.
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ILECs are generally required to file their prices, including any price
changes, with the state regulatory agencies in their service areas. The ILECs
have also been given some flexibility to respond to competition with lower
pricing. In most cases, proposals for lower pricing must also be filed with the
state regulatory commissions and the pricing must be made available to
similarly situated customers. We believe this provides a disincentive for the
ILECs to significantly vary or discount prices even in competitive situations.
However, similar obligations apply to us.
In March 1999, some of the ILECs requested, among other things, that the
FCC relax regulation of their provision of advanced data networks, which may
also be used for voice traffic. While the FCC denied those requests, it has
initiated a rule-making that is intended to establish the procedures and
safeguards necessary before these ILECs could, through separate subsidiary
companies, provide these services on a largely deregulated basis. If adopted,
these rules may provide additional opportunities for competition from these
ILECs. In March 1999, the FCC released an order addressing, among other things,
colocation rights of ILECs and CLECs offering advanced high-speed data
services, but deferred action on the ILEC separate subsidiary issue. SBC
Communications, in its agreement with the FCC regarding its acquisition of
Ameritech, agreed to form a separate subsidiary for data services. Bell
Atlantic, in connection with its FCC application to enter the long distance
market, also formed a separate data subsidiary, though it was not required to
do so by the FCC.
The ILECs offer a wider variety of services in a broader geographic area
than ours and have much greater financial, network and human resources than we
do. This may encourage an ILEC to subsidize the pricing for services with which
we compete with the profits of other services in which the ILEC remains the
dominant provider. We believe state regulators have exercised their enforcement
powers in a way that makes it unlikely the ILECs would be able to successfully
pursue this type of pricing strategy for an extended period.
We also face competition from a growing number of facility and non-facility
based CLECs and all distance integrated communications providers. There are
typically several CLECs and integrated communications providers competing in
each metropolitan market we serve or plan to enter. Examples of data and voice
CLECs in our markets include Adelphia Business Solutions, Allegiance
Telecommunication, Covad Communications Group, NEXTLINK Communications,
NorthPoint Communications Group, Rhythms NetConnections and Teleport
Communications Group (a subsidiary of AT&T). In some instances, these CLECs and
integrated communications providers have resources greater than ours and offer
a wider range of services. Many of the CLECs and integrated communications
providers in our markets target small and medium-sized business customers and a
few target residential customers.
We are increasingly competing with long distance carriers who also want to
be all distance providers and offer bundled services. A number of large long
distance carriers, such as AT&T, MCI WorldCom and Sprint, have introduced local
telecommunications services to compete with the ILECs and, therefore, with us.
These services include toll calling and other local calling services and
wireless services which are often bundled with the carrier's long distance
service. Large long distance carriers enjoy various competitive advantages due
to their vast financial and operating resources and brand name recognition. In
addition, we believe there is a risk the long distance carriers may subsidize
the pricing of their local services with profits from long distance services or
wireless services.
Government Regulation
The following summary of regulatory developments and legislation is not
complete. It does not describe all present and proposed federal, state and
local regulation and legislation affecting the telecommunications industry.
Existing federal and state regulations are currently subject to judicial
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proceedings, legislative hearings and administrative proposals that could
change, in varying degrees, the manner in which our industry operates. We
cannot predict the outcome of these proceedings or their impact on the
telecommunications industry or us.
Overview
Our services are subject to varying degrees of federal, state and local
regulation. The FCC exercises jurisdiction over all the facilities of, and
services offered by, telecommunications common carriers like us to the extent
our facilities provide, originate or terminate interstate or international
communications. Similarly, like most other CLECs and integrated service
providers, we are subject to various degrees of regulation in each state in
which we operate, under the jurisdiction of the pertinent state regulatory
commissions which retain jurisdiction over most of the same facilities and
services to the extent they are used to provide, originate or terminate
intrastate communications. The decisions of these regulatory bodies are subject
to judicial review, which makes it difficult for us to predict outcomes in this
area. We cannot guarantee that regulators or third parties will not raise
material issues with regard to our compliance or non-compliance with applicable
laws or regulations.
Federal regulation
We must comply with the requirements of common carriage under the
Communications Act of 1934. Comprehensive amendments to the Communications Act
of 1934 were made by the Telecommunication Act. The purpose of this legislation
was to significantly deregulate the telecommunications industry, and foster
increased competition among carriers. Because implementation of the
Telecommunication Act is subject to numerous federal and state policy rule-
making and judicial review, we cannot predict with certainty what its ultimate
effect on us will be. However, we believe we have obtained all Federal
approvals necessary to conduct our business as it is presently conducted.
Under the Telecommunication Act, any entity may enter a telecommunications
market, subject to reasonable state safety, quality and consumer protection
regulations. The Telecommunication Act makes local markets accessible by
requiring the ILEC to permit interconnection to its network and establishing
obligations of both ILECs and CLECs with respect to:
. Colocation of equipment. This allows companies like us to install and
maintain our own network equipment, including voice, data collection
and distribution equipment and data direction equipment, in ILEC
central offices;
. Reciprocal compensation. This requires the ILECs and CLECs to
compensate each other for telecommunications traffic that originates
on the network of one carrier and is sent to the network of the other;
. Resale of service offerings. This requires CLECs and ILECs to make
their retail services available for resale. ILECs are required to
establish wholesale rates for these services to promote resale by
CLECs;
. Interconnection. This requires CLECs and ILECs to permit their
competitors to interconnect with their facilities. ILECs are required
to permit interconnection at any technically feasible point in the
ILECs' networks under nondiscriminatory rates, terms and conditions;
. Access to network elements. This requires the ILECs to let other
parties lease components of the ILEC's networks such as the telephone
lines that connect homes and offices to the ILEC central telephone
offices.
. Phone number transferability. This requires the ILECs and CLECs to
allow a customer to retain an existing phone number within the same
local area even if the customer changes telecommunications services
providers. All telecommunications carriers are required to contribute
to the shared industry costs of phone transferability;
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. Dialing parity. This requires the ILECs and CLECs to establish dialing
parity so that customers will not have to dial additional digits to
reach customers served by another carrier's network; and
. Access to rights-of-way. This requires the ILECs and CLECs to
establish non-discriminatory access to telephone poles, ducts,
conduits and rights-of-way.
ILECs are required to negotiate in good faith with other carriers that
request any or all of the arrangements discussed above. If a requesting carrier
is unable to reach an agreement with the ILEC within a prescribed time, either
carrier may request arbitration before the applicable state regulatory
commission. If an agreement still cannot be reached, carriers are forced to
abide by the obligations established by the applicable state commission.
We have entered into two interconnection agreements with Bell Atlantic
covering the New York and Massachusetts markets and plan to enter into
additional agreements with Bell Atlantic and ILECs in other markets as the
deployment of our network progresses. Our New York agreement with Bell Atlantic
may be terminated by either party upon 90 days notice to the other. Our
Massachusetts agreement will expire in April 2001, unless either party requests
renegotiation prior to that time, in which case the agreement would remain in
effect until a new agreement is executed or in the case of arbitration, the
effective date of an arbitration decision by the Massachusetts Department of
Telecommunications and Energy. In addition to establishing the terms for
network interconnection, these agreements provide the terms under which we may
initially resell Bell Atlantic service to our customers. The resale terms are
expressly described in the Massachusetts interconnection agreement. Rates are
based on the interconnection agreement and applicable state and federal
tariffs. The New York agreement references the resale terms stated in a tariff
filed by Bell Atlantic in New York. Rates are also based on the interconnection
agreement and state and federal tariffs.
The FCC is charged with establishing guidelines to implement the
Telecommunication Act. In August 1996, the FCC released a decision, known as
the Interconnection Decision, that established rules for the interconnection
requirements outlined above and provided guidelines for the review and approval
of interconnection agreements by state commissions. The U.S. Court of Appeals
for the Eighth Circuit vacated portions of the Interconnection Decision. On
January 25, 1999, the U.S. Supreme Court reversed the Eighth Circuit and upheld
the FCC's authority to issue regulations governing pricing of leased telephone
lines provided by the ILECs in interconnection agreements. In addition, the
Supreme Court affirmed an FCC rule that allows requesting carriers to "pick and
choose" the most attractive portions of existing interconnection agreements
with other carriers. The Supreme Court did not, however, address other
challenges raised about the FCC's rules at the Eighth Circuit. These challenges
will have to be addressed by the Eighth Circuit in light of the Supreme Court's
decision. In addition, the Supreme Court disagreed with the standard applied by
the FCC for determining whether an ILEC should be required to provide a
competitor with particular leased telephone lines.
The FCC adopted a new standard in 1999 for analyzing leased telephone lines
as required by the Supreme Court. Applying this standard to the existing
network elements, the FCC concluded that ILECs would no longer be required to
provide directory assistance and operator services as network elements, though
they will continue to be available pursuant to tariff at different rates. The
FCC also removed leased switching as an element in the top 50 metropolitan
statistical areas where the ILECs are also providing certain other combinations
of elements in a nondiscriminating fashion. However, the FCC declined, except
in limited circumstances, to require ILECs to lease certain facilities used to
provide high-speed internet access and other data services.
The decisions of the Eighth Circuit and Supreme Court have not resolved the
uncertainty about the rules governing the pricing terms and conditions of
interconnection agreements. The Supreme
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Court's actions in particular may affect the renegotiation of existing
agreements. The ILECs may, as a result of the Supreme Court reversal, seek to
stop providing some leased telephone lines. Although state commissions continue
to implement and enforce interconnection agreements, the Supreme Court ruling
and future FCC and court rulings may affect these commissions' authority to
implement or enforce interconnection agreements or lead to additional rule-
making by the FCC. The resulting uncertainty makes it difficult to predict
whether we will be able to continue to rely on our existing interconnection
agreements or have the ability to negotiate acceptable interconnection
agreements in the future.
In addition to requiring the ILECs to open their networks to competitors
and reducing the level of regulation applicable to CLECs, the
Telecommunications Act also reduces the level of regulation that applies to the
ILECs, thereby increasing their ability to respond quickly in a competitive
market. For example, the FCC has applied "streamlined" tariff regulation of the
ILECs, which shortens the requisite waiting period before which tariff changes
may take effect. These developments enable the ILECs to change rates more
quickly in response to competitive pressures. The FCC has also adopted greater
price flexibility for the ILECs, subject to specified caps. This flexibility
may decrease our ability to effectively compete with the ILECs in our markets.
In March 1999, the FCC issued an order requiring ILECs to provide telephone
lines and colocation on more favorable terms than had previously been
available. The order permits colocation of equipment that could be used to more
efficiently provide advanced data services such as high-speed DSL-based
service, and requires less expensive colocation outside the traditionally
restricted area. These new forms of colocation will allow more space in an
ILEC's central office to be utilized for physical colocation. In the past when
an office reached full capacity, the only alternative was virtual colocation
whereby the ILEC took ownership of facilities dedicated for the CLEC's use. We
view virtual colocation as an inferior alternative since we would have to rely
on the ILEC to perform all provisioning and maintenance on our behalf.
On March 17, 2000, the D.C. Circuit Court vacated those portions of the
FCC's expanded colocation rules that permitted CLECs to collocate equipment
that contained functions in addition to those necessary for interconnection or
access to leased telephone lines. The Court, while upholding the FCC's
authority to require colocation, also rejected the FCC's effort to leave the
choice of space within the central office to the CLEC. The Court vacated the
FCC's rules in part and remanded to the FCC the issue of what equipment is
necessary for interconnection or access to leased elements.
In the March order, the FCC deferred action on its previous proposal to
permit ILECs to offer advanced data services through separate affiliates, free
from some of the obligations of the Telecommunication Act. In an August 1999
order, the FCC determined that services such as those based on DSL technology
are telecommunications services subject to regulation under sections 251 and
252 of the Telecommunications Act. In the August order, the FCC also included a
separate subsidiary proposal that would permit Regional Bell Operating
Companies to provide advanced services through a separate subsidiary. The FCC
has not acted on that proposal. Permitting ILECs to provision data services
through separate affiliates with fewer regulatory requirements could have a
material adverse impact on our ability to compete in the data services sector.
SBC, in connection with its acquisition of Ameritech, agreed with the FCC to
certain terms and conditions including the formation of a separate subsidiary
to offer DSL-based services. Also, Bell Atlantic, under FCC auspices,
volunteered to form a separate subsidiary to offer DSL based services in
conjunction with their application under the Telecommunications Act to offer
long distance services. These structural arrangements are subject to change
through additional proceedings at the FCC or judicial challenge.
The Telecommunications Act also gives the FCC authority to determine not to
regulate carriers if it believes regulation would not serve the public
interest. The FCC is charged with reviewing its regulations for continued
relevance on a regular basis. As a result of this mandate, a number of
regulations that apply to CLECs and integrated communications providers and
therefore to us have been and may in the future continue to be eliminated. We
cannot, however, guarantee that any regulations that are now or will in the
future be applicable to us will be eliminated.
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Access reform
Our cost of providing long distance services, as well as revenues from
providing local services, will likely be affected by changes in the access
charge rates imposed by ILECs on long distance carriers for origination and
termination of calls over local facilities. The FCC has made major changes in
the interstate access charge structure. In a December 24, 1996 order, the FCC
removed restrictions on ILECs' ability to lower access prices and relaxed the
regulation of new switched access services in those markets where there are
other providers of access services. A May 16, 1997 order substantially
increased the amounts that ILECs subject to the FCC's price cap rules recover
through monthly flat-rate charges and substantially decreased the amounts that
these ILECs recover through traffic-sensitive (per minute) access. On August
19, 1998, the U.S. Court of Appeals for the Eighth Circuit upheld the FCC's
access charge reform rules.
On August 5, 1999, the FCC adopted an order granting ILECs additional
pricing flexibility, implementing certain access charge reforms, and seeking
comments on others. The order provides immediate regulatory relief to price cap
carriers and sets a framework of triggers to provide those companies with
greater pricing flexibility to set interstate access rates as competition
increases. The order also initiated a rulemaking to determine whether the FCC
should regulate the access charges of CLECs. If this increased pricing
flexibility for price cap ILECs is not effectively monitored, or if the FCC
regulates CLEC access charges, it could have a material adverse impact on our
ability to price our own interstate access services competitively.
Universal service
On May 8, 1997, the FCC issued an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new universal service funds to support telecommunications and
information services provided to qualifying schools and libraries and to rural
health care providers. The FCC also expanded the federal subsidies for local
exchange telephone services provided to low-income consumers and recently
doubled the size of the high-cost fund for non-rural carriers. Providers of
interstate telecommunications service, such as us and certain other entities,
must pay for these programs. Our contribution to these universal service funds
will be based on our telecommunications service end-user revenues. The
contribution level for each interstate provider is based upon its revenues for
the prior year. Contribution factors vary quarterly, the current contribution
rate is 5.7101% of interstate and international end user telecommunications
revenues. Contribution amounts may be billed to customers. We are unable to
quantify the amount of subsidy payments we will be required to make in the
future and the effect that these required payments will have on our financial
condition because of uncertainties concerning the size of the universal service
fund and the uncertainties surrounding the classification of certain services
as subject to the fund's revenue measures.
Several parties appealed the FCC's May 8, 1997 and subsequent orders. The
U.S. Court of Appeals for the Fifth Circuit upheld the May 8, 1997 order in
most respects, but has rejected the FCC's effort to base contributions in part
on intrastate revenues. The FCC's universal service program may also be altered
as a result of the agency's reconsideration of its policies, or by future
Congressional action.
Line sharing
On November 18, 1999, the FCC adopted rules to promote competition for
advanced services by directing local telephone companies to share their
telephone lines with providers of high-speed internet access and other data
services. The FCC's order permits competitive carriers to obtain access to the
high-frequency portion of the local line over which an ILEC provides voice
services. This will enable competitive providers like ourselves to provide
certain DSL-based services over the same telephone lines that the ILECs
simultaneously use to provide basic telephone service. This technique is
referred to as line sharing.
42
<PAGE>
Line sharing will permit customers to obtain innovative data services from
either incumbent or competitive carriers, without having to forego the
traditional voice services from their provider of choice. Since line sharing
allows customers to receive both services on the same line, it eliminates the
need for customers to procure a second line when they elect to receive data
service from an ILEC. By eliminating the need for a second line, line sharing
could have a positive effect on our ability to provision services quickly and
lower our costs of providing our customers with high-speed data and internet
applications.
The FCC has requested that state regulatory commissions adopt interim rules
implementing line sharing within 180 days after the effective date of the order
so that other parties such as ourselves may begin offering services as soon as
possible. We will be able to request negotiations on line sharing with the
ILECs, and if those negotiations fail, will be able to seek arbitration before
a state regulatory commission 180 days after filing our initial request. While
the FCC has set pricing guidelines for state regulators to follow when
implementing line sharing, pricing disputes, litigation and technical issues at
the state level are likely to delay broad implementation of the FCC line
sharing order past the FCC's 180 day goal.
As of December 3, 1999, one Regional Bell Operating Company, US West, has
agreed to interim line sharing terms with several CLECs in Minnesota. Under
that arrangement, the CLECs have agreed to pay $6.05 per shared line, which
represents a cost reduction of approximately 50% off the regular line rate. The
Minnesota Public Utilities Commission plans to hold hearings to discuss
permanent rates, which may end up being different than the interim rates. On
December 20, 1999, Bell Atlantic filed a tariff in New York which offers
carriers an interim discount of 50% off of the regular rate applicable to lines
that are capable of providing advanced data services. Bell Atlantic's discount
rate is subject to the New York Public Service Commission's authority to
prescribe permanent rates which may be different, and carriers are free to
negotiate different rates as well.
Reciprocal compensation
Reciprocal compensation is the compensation paid by one local exchange
carrier to complete local calls on another local exchange carrier's network. As
a result of the current regulatory environment and several trends in our
business, which are discussed below, we expect our revenues from reciprocal
compensation to be minimal.
Several ILECs have submitted challenges to state public utility commissions
and the courts as to whether reciprocal compensation is owed for internet bound
calls. Of the over 30 state commissions that have considered the issue, almost
all have upheld the requirement that the originating customer's carrier is
required to treat calls bound to internet service providers as all other local
calls and to pay reciprocal compensation for internet service provider-bound
traffic. In our target geographic areas, only Massachusetts and New Jersey are
not presently requiring reciprocal compensation for this traffic, at least
pending negotiations and a further FCC decision. However, South Carolina and
Louisiana have also determined reciprocal compensation is not owed. Many of
these cases are now being appealed. Other states that have not considered the
issue to date or reconsidered the issue may yet determine that no compensation
is owed.
In addition, on February 26, 1999, the FCC issued a declaratory ruling and
Notice of Proposed Rulemaking concerning inbound internet service provider
traffic. The FCC concluded in its ruling that internet service provider traffic
is jurisdictionally mixed and largely interstate in nature, and thus within the
FCC's jurisdiction. The FCC also determined that no federal rule existed that
governed reciprocal compensation for internet service provider traffic at the
time existing interconnection agreements were negotiated and concluded that it
should permit states to determine whether reciprocal compensation should be
paid for calls to internet service providers under existing interconnection
agreements pending the adoption of a federal rule by the FCC. This FCC order
has been appealed by several parties. Briefing was completed by September 2,
1999 and oral arguments were heard on
43
<PAGE>
November 22, 1999. The Court of Appeals has set no timeline or announced an
expected date for its decision. On August 26th, 1999, the New York Public
Service Commission adopted rules that allow carriers to continue to collect
compensation for internet-related calls but capped the amount available based
on traffic imbalances, thereby reducing the payments to CLECs whose local and
internet-based traffic is in excess of a 3:1 ratio. However, the New York
Public Service Commission also gave CLECs the opportunity to rebut the
presumption that its ratio should be 3:1 or lower by demonstrating that their
networks are intended to be robust, general purpose networks, not designed
primarily to service inbound traffic only. This decision may serve as precedent
for other state commissions seeking to reconcile the growth of internet traffic
and the increasingly larger payments owed by the ILECs to competitive carriers
serving internet service providers.
We currently do not collect reciprocal compensation from Bell Atlantic for
internet service provider-bound traffic in the states of Massachusetts and New
York. Under our current interconnection agreements with Bell Atlantic in both
of these states, we are not eligible to collect reciprocal compensation for
internet service provider-bound traffic. Thus, the uncertainty surrounding the
consideration of this issue by the states and the FCC does not have a
substantial impact on our current operations, although it could affect our
ability to collect reciprocal compensation for internet service provider-bound
traffic under interconnection agreements in new markets such as New Jersey,
Rhode Island, or Delaware.
Tariff and filing requirements
Non-dominant carriers, including us, must file tariffs with the FCC listing
the rates, terms and conditions of interstate and international services
provided by the carrier. On October 29, 1996, the FCC adopted an order in which
it eliminated the requirement that non-dominant interstate carriers maintain
tariffs on file with the FCC for domestic interstate services. The FCC's order
was issued relying on authority granted in the Telecommunications Act to
forebear from regulating any telecommunications services provider if specified
statutory analyses are satisfied. The FCC's order, however, was stayed by a
federal court. Accordingly, non-dominant interstate carriers, including us,
currently must continue to file interstate tariffs with the FCC until final
determination of the issue. Any challenges to these tariffs by regulators or
third parties could cause us to incur substantial legal and administrative
expenses.
In addition, periodic reports concerning carriers' interstate circuits and
deployment of network facilities also are required to be filed with the FCC.
The FCC generally does not exercise direct oversight over cost justification
and the level of charges for services of non-dominant carriers, although it has
the power to do so. Recently it has suggested it may examine the access rates
charged by CLECs to long distance carriers. At the current time, the FCC does
not require competitive carriers to file tariffs with respect to their
interstate access services. Thus, we have not filed our rates to provide
internet connectivity through DSL products at this time, since the FCC has
classified this as an interstate access service. If, however, we begin using
DSL products to offer telecommuting services or other services that involve
high-speed connections between intrastate points, we may be required to file
tariffs with the state commissions with respect to such services.
The FCC may also impose prior approval requirements on transfers of control
and assignments of operating authorizations. Fines or other penalties also may
be imposed for violations of FCC rules or regulations. The FCC also requires
that certified carriers like us notify the FCC of foreign carrier affiliations
and secure a determination that such affiliations, if in excess of a specified
amount, are in the public interest.
Digital Wiretapping
The Communications Assistance to Law Enforcement Act, enacted in 1994,
CALEA, requires telecommunications carriers to make available certain
telecommunications capabilities to U.S. law
44
<PAGE>
enforcement officials to permit those authorities to continue to intercept
communications involving advanced technologies such as digital and wireless
transmission communications. CALEA imposes certain obligations on carriers to
ensure that their equipment, facilities and services will meet capability and
capacity requirements in order to provide law enforcement agencies the ability
to intercept wireline and wireless communications transmitted over those
carrier's networks. Courts may impose fines of up to $10,000 per day on
telecommunications carriers that fail to meet the required capability
functions, as determined by industry standards. Under procedures specified in
CALEA, the U.S. Department of Justice recently filed a petition at the FCC
challenging the technical capability standard developed by the
telecommunications industry. Because of the disputed standard, several
carriers sought an FCC extension of the October 25, 1998 capability compliance
deadline. The FCC recently extended the compliance date for the CALEA
capability requirements to June 30, 2000 to permit manufacturers sufficient
time to develop CALEA complaint equipment. In the meantime, we expect the FCC
to shortly issue an order identifying the capabilities carriers such as us
will have to provide to law enforcement officials in order to meet CALEA's
requirements. Telecommunications carriers must also meet CALEA capacity
requirements mandating that by March 12, 2001, carriers enable a specific
number of simultaneous interceptions determined on a geographic basis. We
cannot predict the nature and extent of the impact the CALEA requirements will
have on us or on telecommunications carriers in general.
State regulation
Most states regulate entry into the markets for local exchange and other
intrastate telecommunications and data services, and states' regulation of
CLECs vary in their regulatory intensity. The majority of states require that
companies seeking to provide local exchange and other intrastate services
obtain authorization from a state regulatory body, such as a state public
utility commission. This authorization process generally requires the carrier
to demonstrate that it has sufficient financial, technical and managerial
capabilities and that granting the authorization will serve the public
interest. As of March 20, 2000, we had obtained local exchange certification
or were otherwise authorized to provide local exchange and intrastate long
distance service in New York, Massachusetts, Pennsylvania and Rhode Island.
We also have filed applications for local exchange and intrastate long
distance certification or other authorization in Delaware, Illinois, Maryland,
New Hampshire, New Jersey, Texas, Virginia, Michigan and the District of
Columbia. We are preparing an application for California. We expect to be
granted the necessary approvals by mid-2000, although we cannot guarantee this
will occur. To the extent that an area within a state in which we provide
service is served by a small or rural exchange carrier not currently subject
to competition, we may not currently have authority to provide service in
those areas at this time.
As an authorized local exchange carrier, we are and will continue to be
subject to the regulatory directives of each state in which we are and will be
certified. Most states require that competitive carriers such as ourselves
charge just and reasonable rates and not discriminate among similarly situated
customers. Other state requirements include, the filing of periodic reports,
the payment of various regulatory fees and surcharges and compliance with
service standards and consumer protection rules.
States also often require prior approvals or notifications for certain
transfers of assets, customers, or ownership of local exchange companies and
for issuances by certified carriers of equity securities, notes or
indebtedness, although the terms of this offering do not require any prior
approval. States generally retain the right to sanction a carrier or to revoke
certifications if a carrier violates relevant laws and/or regulations. Delays
in receiving required regulatory approvals could also have a material adverse
effect on us.
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<PAGE>
In most states, certificated carriers like us are required to file tariffs
describing the terms, conditions, and prices for services which are classified
as intrastate. In some states, the required tariff may list a range of prices
for particular services, and in others, these prices can be set on an
individual customer basis. We may, however, be required to file tariff addenda
of the contract terms.
Under the Telecommunication Act, implementation of our plans to compete in
local markets is and will continue to be, to a certain extent, controlled by
the individual states. The states in which we operate or intend to operate have
taken regulatory and legislative action to open local communications markets to
various degrees of local exchange competition.
Local regulation
We are also subject to numerous local regulations, including building code
requirements, rights of way, franchises, taxes and surcharges and,
occasionally, requirements that we acquire emergency 911 authorizations from
local municipalities or 911 administrators. These regulations may vary greatly
from state to state and from city to city.
Intellectual Property Rights
We regard our copyrights, service marks, trade secrets and similar
intellectual property as critical to our success. We rely upon a combination of
copyright law and contractual restrictions with employees, customers and others
to protect our rights. We do not currently hold any patents. If we fail to
adequately protect our rights, or if we become involved in intellectual
property litigation our business, financial condition and results of operations
could be materially and adversely affected.
Employees
As of December 31, 1999, we employed over 340 people. Our employees are not
unionized, and we believe our relations with our employees are good.
Legal Proceedings
We are occasionally a party to routine litigation and proceedings in the
ordinary course of business. We are not aware of any current or pending
litigation to which we are or may become a party that we believe could
materially adversely affect our results of operations or financial condition.
46
<PAGE>
Properties
We lease office space in a number of locations. In general, our sales
offices are short term leases. Our network facilities are typically ten year
leases with two five-year renewal options. As of March 1, 2000, our leased
properties were:
<TABLE>
<CAPTION>
Square
Location Feet Expiration of Lease Term Type of Facility
-------- ------ ------------------------ ----------------
<C> <C> <S> <C>
Long Island City, NY.. 35,100 Lease applicable to Headquarters,
20,000 square feet Customer Operations,
expires September 2004, Sales Office
with one five-year
renewal option
Long Island City, NY.. 21,000 July 2009, with two Network
five-year renewal
options
New York, NY.......... 17,600 April 2010, with one Future Headquarters
five-year renewal
option
Syracuse, NY.......... 8,000 August 2004, with two Customer Operations,
five-year renewal Sales Office
options
Syracuse, NY.......... 4,100 December 2000, no Vacant Space
renewal option
Syracuse, NY.......... 8,000 October 2009, with two Network
five-year renewal
options
Jericho, NY........... 2,200 May 2001, no renewal Sales Office
option
Albany, NY............ 1,900 October 2000, no renewal Sales Office
option
Buffalo, NY........... 2,300 January 2001, no renewal Sales Office
option
Boston, MA............ 12,500 April 2010, with one Network, Sales Office
five-year renewal
option
Philadelphia, PA...... 26,000 July 2005, with one Sales, Customer
five-year renewal Operations, Network
option Operations Center
Philadelphia, PA...... 10,000 November 2010, with two Network
five-year renewal
options
Westport, CT.......... 6,000 April 2002, with one General Office Use
two-year renewal option
</TABLE>
The 35,100 square foot leased space in Long Island City is located in
different areas of a building and separated into four individual leases. The
20,000 square foot lease expires September 2004. The 7,600 square foot lease
expires December 2001. The 4,600 square foot lease expires July 2001. The 2,900
square foot lease is month-to-month. Only the 20,000 square foot lease has a
five year option to renew.
The Company's rent obligation under the 4,100 square foot Syracuse lease is
paid by 224 Harrison Associates, LLC, the lessor of 224 Harrison in Syracuse,
as a condition of Broadview Networks entering into a lease with respect to the
224 Harrison Property.
47
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages as of the date of this
prospectus, are listed below:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<C> <C> <S>
Vern M. Kennedy.................. 33 President, Chief Executive Officer and
Chairman of the Board of Directors
Joel D. Gross.................... 45 Chief Financial Officer and Executive
Vice President--Strategic Planning and
Corporate Development
Eric G. Roden.................... 44 Chief Operating Officer
Kenneth A. Shulman............... 46 Chief Technology Officer
Colm D. Kelly.................... 61 Chief Information Officer
George F. Holland................ 44 Executive Vice President--Sales and
Marketing
Terrence J. Anderson............. 33 Executive Vice President--Finance
Tracy W. Korman.................. 36 Executive Vice President--Customer
Relationship Management
Heidi B. Heiden (1).............. 61 Director
Stuart A. Mencher (2)............ 60 Director
Edward W. Scott (1)(2)........... 37 Director
Roland A. Van der Meer(1)........ 39 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Vern M. Kennedy is one of our co-founders and has served as Chairman of the
board of directors, President and Chief Executive Officer since our inception
in March 1996. He was responsible for the initial design and development of
what have become our systems and processes. From July 1989 to January 1996, Mr.
Kennedy held various operations management positions at NYNEX (presently Bell
Atlantic Corporation). In his last position as Director of Operations, he was
responsible for field and center operations, process improvement and general
business management.
Joel D. Gross has served as our Chief Financial Officer and Executive Vice
President--Strategic Planning and Corporate Development since September 1999.
Mr. Gross has 22 years of telecommunications experience in finance, planning,
sales and marketing and other management functions. Prior to joining us, Mr.
Gross was Vice President of Corporate Strategy and Business Development for
AT&T since June 1998. From February 1993 to June 1998, he was Senior Vice
President of Corporate Development for Teleport Communications Group and a
member of the Executive Committee. He was Vice President and Senior Securities
Analyst for the telecommunications services sector for Donaldson, Lufkin &
Jenrette Securities from 1987 to 1993, and for Dean Witter Reynolds from 1985
to 1987. From 1978 to 1985, Mr. Gross held various management positions with
AT&T in sales, marketing, product management, regulatory affairs and systems
analysis.
Eric G. Roden has served as Chief Operating Officer since September 1998.
Mr. Roden has 16 years of management experience in operations and networks in
the telecommunications industry. From 1996 to 1998 he was general manager for
USN Communications. He was Vice President of Operations and Engineering for MFS
Communications from 1995 to 1996, and from 1993 to 1995, for Northeast
Networks. He also held senior management positions in engineering operations
and network management with Eastern Telelogic and ITT's U.S. Transmission
Systems, and served in the United States Marine Corps specializing in secure
data and voice communications for the Department of Defense.
48
<PAGE>
Kenneth A. Shulman joined us in December 1999 as Chief Technology Officer.
Mr. Shulman has 24 years of telecommunications experience in systems
engineering, network technology, planning and voice, data, and video
applications development. Prior to joining us, Mr. Shulman was Vice President
of Local Network Technology at AT&T since 1998. From 1987 to 1998, he held
various senior management positions in technology, network architecture,
engineering and planning at Teleport Communications Group, including Senior
Vice President and Chief Technology Officer and member of the Executive
Committee from 1995 to 1998. Prior to joining Teleport Communications Group, he
held network and systems engineering positions at MCI International, Bell
Communications Research and Bell Laboratories.
Colm D. Kelly is a co-founder of Open Support Systems and has served as
Vice President-- Development since our inception and as Chief Information
Officer since December 1999. Mr. Kelly has over 30 years of computer experience
in database development, programming and networking. From 1988 to 1997, he was
a founder and president of Unsel, which specialized in client/server database
and network applications to the telecommunications, banking and other
industries.
George F. Holland joined us in December 1999 as Executive Vice President--
Sales and Marketing. Mr. Holland has 21 years of telecommunications experience,
most recently serving as Senior Vice President of Covad Communications Group,
since 1998, where he was responsible for building a New York regional DSL
network. From 1997 to 1998, he was Senior Vice President for National Sales at
Toll Free Cellular. From 1995 to 1996, he was Chief Executive Officer of
Starlink Communications, where he was responsible for building a full service
long distance company. From 1979 to 1995, Mr. Holland held a number of
management positions with AT&T, including business sales, customer service,
product development and network operations.
Terrence J. Anderson is one of our co-founders and has served as Executive
Vice President-Finance since our inception in March 1996. He also served as a
Director from March 1996 to April 1999. From 1988 to 1995, Mr. Anderson was
employed at Chemical Bank, most recently as Vice President in the Media and
Telecommunications-Corporate Finance Group.
Tracy W. Korman is one of our co-founders and is Executive Vice President--
Customer Relationship Management. He conceived, designed and developed the
Broadview Networks brand. From December 1995 to October 1996, Mr. Korman was
Business Manager for Sales and Marketing at Bantam Doubleday Dell. He was a
consultant in the Strategy and Marketing and Media practices of Booz, Allen &
Hamilton from 1986 to December 1995.
Heidi B. Heiden became a director in January 2000. Mr. Heiden has held
senior technology management positions in several industries. From 1995 to
1999, he served as Senior Vice President, Operations and Technology of UUNET, a
unit of MCI WorldCom, where he was responsible for building and running the
network, customer support and information systems. From 1990 to 1995, he was a
Senior Operating Officer at Salomon Brothers. His prior experience includes
senior management roles with The Wollongong Group and Trusted Information
Systems. He also served in the US Army where he led various technology
programs, including the design and implementation of voice and data systems and
the Defense Data Network, the largest data system at the time and the basis of
what is now known as the internet.
Stuart A. Mencher became a director in January 2000. Mr. Mencher has held
several senior executive positions in the telecommunications and data
processing industries. From 1998 to 1999, he was Vice President of Strategic
Planning for AT&T Business Services. He was Senior Vice President of Sales and
Marketing for Teleport Communications Group and a member of the Executive
Committee from 1992 to 1998, where he was responsible for leading TCG's overall
market and sales channel development initiatives. His prior experience includes
strategic marketing, sales, customer service and general management roles with
MCI Communications, Motorola, AT&T Information Systems and IBM.
49
<PAGE>
Edward W. Scott has served as a director since April 1999. Mr. Scott is a
co-founder and general partner of the Baker Communications Fund, a private
equity fund that invests exclusively in communications equipment, services and
Internet applications companies. Mr. Scott has been a general partner of that
firm since 1996. From December 1990 until March 1996, Mr. Scott was a private
equity investor with the Apollo Investment Fund, L.P. Mr. Scott currently
serves on the board of directors of Akamai Technologies, Advanced Switching
Communications, DataStudy, Fort Point Partners, InterXion Holdings and
Style365.com.
Roland A. Van der Meer has served as a director since 1998. Mr. Van der
Meer is a general partner of ComVentures, a venture capital firm. From 1993 to
1997, he was also a partner at the venture firm Partech International. His
previous experience includes Hambrecht & Quist Venture Partners, GTE and
Sprint. Mr. Van der Meer is on the boards of Arbinet, Universal Access,
Chromatis, Dynamicsoft, Nisham Systems, Range Star International, SiteSmith,
Zantaz.com and Zoneworx.
Each officer serves at the discretion of our board of directors. Each
director serves until his successor is duly elected and qualified.
Board Composition
We have five individuals on our board of directors. The Board is divided
into three classes, with the term of office of the first class, which consists
solely of Mr. Kennedy, to expire at the first annual meeting of stockholders
after this offering which is expected to occur in 2000; the term of office of
the second class, which consists of Messrs. Van der Meer and Scott, to expire
at the second annual meeting of stockholders after this offering which is
expected to occur in 2001; and the term of office of the third class, which
consists of Messrs. Mencher and Heiden, to expire at the third annual meeting
of stockholders after this offering which is expected to occur in 2002. Each
term afterward will expire at each third succeeding annual meeting of
stockholders held after the meeting at which the director in question was
elected.
Election of Directors and Voting Agreement
Some of our stockholders have each agreed to vote all of their shares in
such a manner as to elect directors as follows: ComVentures, New Enterprise
Associates and Weiss, Peck & Greer Venture Partners collectively have the right
to designate one director and Baker Communications Fund, ComVentures, New
Enterprise Associates and Weiss, Peck & Greer Venture Partners collectively
have the right to designate one director. Under these arrangements, Mr. Van der
Meer and Mr. Scott have been elected to the board. Each group of stockholders
will lose its right to designate a director if its ownership of our common
stock falls below 5%.
Director Compensation
We reimburse non-employee directors for reasonable out-of-pocket expenses
incurred in attending meetings of the board of directors. We may, in our
discretion, grant stock options and other equity awards to our non-employee
directors from time to time, pursuant to our 2000 Stock Option Plan. Messrs.
Heiden and Mencher were each granted options to purchase 60,000 shares of
common stock pursuant to this plan. During 1999, we also granted 6,857 stock
options to Peter Lawson-Johnson, 11,405 stock options to Philip Smith and
22,808 stock options to Joseph Walsh. Messrs. Lawson-Johnson, Smith and Walsh
were non-employee directors at the time these options were granted under our
1997 Stock Option Plan, but are no longer members of our board of directors. We
pay the premiums on a directors and officers insurance policy covering all of
our directors.
50
<PAGE>
Committees of the Board of Directors
Our board of directors has established an audit committee and a
compensation committee. The functions of the audit committee will be to:
.recommend annually to our board of directors the appointment of our
independent auditors;
. discuss and review in advance the scope and the fees of our annual audit
and review the results thereof with our independent auditors;
.review and approve non-audit services of our independent auditors;
.review compliance with our existing major accounting and financial
reporting policies;
.review the adequacy of major accounting and financial reporting policies;
. review our management's procedures and policies relating to the adequacy
of our internal accounting controls and compliance with applicable laws
relating to accounting practices;
. review compliance with applicable Securities and Exchange Commission and
Nasdaq rules regarding audit committees;
.prepare a report for our annual proxy statement; and
.comply with any additional requirements set forth in the audit committee's
charter.
The three members of the audit committee are Messrs. Van der Meer, Heiden and
Scott, each of whom is an independent director.
Our compensation committee will be composed solely of independent
directors. The compensation committee establishes salaries, incentives and
other forms of compensation for our directors, executive officers and key
employees and administers our equity incentive plans and other incentive and
benefit plans. The two members of the compensation committee are Messrs.
Mencher and Scott.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of directors and the
board of directors or compensation committee of any other company, nor has any
such interlocking relationship existed in the past. Mr. Scott is affiliated
with Baker Communications Fund, L.P., which is our largest stockholder. Baker
is also a party with the Company to the Securities Purchase Agreement and
Stockholders' Agreement dated April 23, 1999.
51
<PAGE>
Executive Compensation
The following table lists information concerning the compensation during
the years ended December 31, 1997, 1998 and 1999 of our Chief Executive Officer
and each of our other four most highly-compensated executive officers during
the year ended December 31, 1999 whose salary and bonus for 1999 equaled or
exceeded $100,000. These executive officers are collectively referred to as the
"Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
-------------- Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Vern M. Kennedy............. 1997 25,000 0 0 0
Chairman, President and 1998 76,846 30,000 0 675
Chief Executive Officer 1999 147,512 41,250 0 2,613
Eric G. Roden............... 1997 0 0 0 0
Chief Operating Officer 1998 40,385 10,096 200,000 0
1999 156,923 32,484 0 0
Colm D. Kelly............... 1997 0 0 0 0
Chief Information Officer 1998 176,576 0 0 11,142(1)
1999 190,000 0 0 1,054
Terence J. Anderson......... 1997 25,000 0 0 0
Executive Vice President--
Finance 1998 73,192 35,000 0 632
1999 115,000 28,875 60,000 2,100
Tracy W. Korman............. 1997 75,000 0 145,000 0
Executive Vice President-- 1998 81,154 35,000 0 655
Customer Relationship
Management 1999 115,000 28,875 40,000 2,348
</TABLE>
- --------
(1) Includes a $10,000 consulting fee paid in 1998 for work done in the fourth
quarter of 1997.
OPTION GRANTS IN FISCAL 1999
The following table lists information as to stock options granted to
Terrence J. Anderson and Tracy W. Korman during the fiscal year ended December
31, 1999. Stock options were not granted to any other Named Executive Officer
during the fiscal year ended December 31, 1999. We have not granted any stock
appreciation rights. The potential realizable value is calculated based on the
term of the option at its time of grant. It is calculated assuming that the
fair market value of common stock on the date of grant equals the $19.00 mid-
range of the estimated initial public offering price and 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. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth. The percentage of total options granted to employees
in the last fiscal year is based on options to purchase an aggregate of
2,440,670 shares of common stock granted to our employees, including
management, during the year.
These options were granted on May 18, 1999 under the 1997 Stock Option
Plan, as amended. As of December 31, 1999, none of these options were
exercisable. 25% of the shares of common stock subject to these options become
exercisable on the first anniversary of the grant date, with the
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<PAGE>
remainder vesting in equal monthly installments following the first
anniversary. All of the options have a term of nine years, subject to earlier
termination in some situations related to termination of employment.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Option
Individual Grants Term
------------------------------------------------------ ---------------------
Percentage of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 0% 5% 10%
- ---- ---------- ------------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Terrence J. Anderson.... 60,000 2.46% $2.75 5/18/08 $975,000 $1,603,514 $2,523,060
Tracy W. Korman......... 40,000 1.64% $2.00 5/18/08 $680,000 $1,099,009 $1,712,040
</TABLE>
AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
The following table lists information with respect to unexercised options
held by the Named Executive Officers as of December 31, 1999. All of these
options to purchase shares of our common stock were granted under our 1997
Stock Option Plan. Neither Vern M. Kennedy nor Colm D. Kelly held unexercised
options as of December 31, 1999. No Named Executive Officer exercised options
during the fiscal year ended December 31, 1999.
There was no public trading market for our common stock as of December 31,
1999. Accordingly, the values set forth below have been calculated on the basis
of an assumed initial public offering price of $19.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying the options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1999 December 31, 1999
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eric G. Roden............... 62,499 137,501 $1,078,108 $2,371,892
Terrence J. Anderson........ 0 60,000 $ -- $ 975,000
Tracy W. Korman............. 145,000 40,000 $2,629,996 $ 680,000
</TABLE>
Employment Agreements
We have employment agreements with each of our executive officers. The
following table shows information about the current compensation arrangements
under these employment agreements. Each agreement has an initial term and is
automatically extended for successive one-year periods after the initial term
unless we or the executive elects to terminate the agreement within 120 days
before the end of the term. If we terminate an executive's employment other
than for cause, death or disability or the executive terminates for a good
reason, we will pay the executive a lump sum amount equal to one-half of the
executive's annual base salary plus the executive's pro rata annual bonus. In
addition, any unvested stock options will continue to vest as if the executive
had remained employed for a period of twelve months following the date of
termination and the executive will continue to receive benefits for a period of
six months after the date of termination. If there is a change of control, all
of the executives' unvested stock options will become 100% vested.
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<PAGE>
All of the options granted to executives were granted either under the 1997
Stock Option Plan or the 2000 Stock Option Plan. Some options were granted at
the time the executive was hired. Not all of these options were granted
pursuant to the employment agreements. However, all are subject to the change
of control provision within these agreements.
<TABLE>
<CAPTION>
Annual
Base Annual
Salary Bonus Options
Name Initial Term ($) (%) Granted
- ---- ------------------- ------- ------ -------
<S> <C> <C> <C> <C>
Vern M. Kennedy...................... 2/03/00 - 12/31/01 250,000 60 590,000
Joel D. Gross........................ 10/01/99 - 9/30/01 260,000 50 830,000
Terrence J. Anderson................. 2/03/00 - 12/31/01 175,000 45 210,000
Tracy W. Korman...................... 2/03/00 - 12/31/01 175,000 45 335,000
George F. Holland.................... 2/03/00 - 12/31/01 250,000 50 300,000
Kenneth A. Shulman................... 12/14/99 - 12/14/01 175,000 45 250,000
Eric G. Roden........................ 2/03/00 - 12/31/00 165,000 45 240,000
Colm D. Kelly........................ 2/03/00 - 12/31/00 200,000 20 50,000
</TABLE>
Employee Benefit Plans
1997 Stock Option Plan
Our 1997 Stock Option Plan was adopted by the board of directors on
February 10, 1997. There are a total of 4,100,000 shares of common stock
reserved for issuance under it. As of December 31, 1999, we have granted
options to purchase 4,011,865 shares under this plan, we have issued 121,392
shares in connection with the exercise of options granted under the plan and
options to purchase 252,270 shares have been forfeited by employees who left
our employ prior to such options vesting. At such date, options to purchase
3,638,203 shares were outstanding under the plan at an average exercise price
of $3.53 per share.
We have occasionally granted stock options under the plan in order to
provide certain officers, directors, employees, and consultants with a
competitive total compensation package and to reward them for their
contribution to our performance. These grants of stock options are designed to
align these individuals' interest with that of our stockholders.
Our board of directors administers the plan and establishes the terms of
the options and the dates after which they become exercisable. Options granted
under the plan generally become exercisable over a four-year period.
The price at which each share of common stock subject to an option granted
under the plan may be purchased is determined by our board of directors at the
time the option is granted. Options granted under the plan to employees may be,
in the discretion of the Board, either incentive stock options or nonqualified
options. Options granted to consultants or directors are nonqualified options.
No incentive stock option may be granted under the plan to any person who
has been appointed to serve on the board of directors effective as of a future
date until the date the appointment becomes effective. Nor may any incentive
stock option be granted to an employee who owns, directly or indirectly, more
than 10% of our voting stock, unless:
. the option price of the incentive stock option is fixed at not less
than 110% of the fair market value of the shares on the date it is
granted, and
. the incentive stock option is not exercisable more than five years
after the date it is granted.
Options granted under the plan generally are not transferable by the
optionee during his or her lifetime.
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<PAGE>
2000 Long-Term Incentive Plan
Our 2000 Long-Term Incentive Plan was adopted by the board of directors on
February 3, 2000. There are a total of 5,200,000 shares of common stock
reserved for issuance under it. Under the 2000 Plan, we may grant stock
options, stock appreciation rights and shares of common stock. As of February
3, 2000, we have granted options to purchase a total of 2,339,321 shares under
this plan at exercise prices ranging from $9.00 to $18.00 per share.
We will occasionally grant stock options, stock appreciation rights and
shares of common stock under the 2000 Plan in order to provide officers,
directors, employees, and consultants with a competitive total compensation
package and to reward them for their contribution to our performance. These
grants of stock options, stock appreciation rights and shares of common stock
will be designed to align these individuals' interest with that of our
stockholders.
The compensation committee of our board of directors administers the 2000
Plan and establishes the terms of the options and stock appreciation rights and
the dates after which they become exercisable. The exercise price of an option
or stock appreciation right granted under the 2000 Plan is determined by our
compensation committee at the time the option or stock appreciation right is
granted, but the exercise price will not be less than 100% of the fair market
value of the share of common stock on the date of the grant. Options granted
under the plan to employees may be, in the discretion of the board, either
incentive stock options or nonqualified options. Options granted to consultants
or directors are nonqualified options. Stock appreciation rights may be granted
in connection with options or may be granted as free-standing awards. If a
stock appreciation right is issued in connection with an option, the stock
appreciation right will expire when the related option expires and the exercise
of the stock appreciation right will result in the surrender of the related
option.
No incentive stock option may be granted under the plan to any person who
has been appointed to serve on the board of directors effective as of a future
date until the date the appointment becomes effective. Nor may any incentive
stock option be granted to an employee who owns, directly or indirectly, more
than 10% of our voting stock, unless:
. the option price of the incentive stock option is fixed at not less
than 110% of the fair market value of the shares on the date it is
granted, and
. the incentive stock option is not exercisable more than five years
after the date it is granted.
Under the 2000 Plan, our compensation committee may grant common stock to
participants. The compensation committee establishes the size of the grant and
any limitations and restrictions on the grant. The total number of shares of
common stock that may be awarded under the plan is 1,000,000.
Options, stock appreciation rights and awards granted under the 2000 Plan
generally are not transferable by the recipient during his or her lifetime.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
on February 3, 2000. There are a total of 300,000 shares of common stock
available for sale. The purchase plan, which is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code of 1986, is administered by our compensation committee. All
employees of Broadview Networks or any present or future subsidiary of
Broadview Networks designated by the board of directors may participate in the
purchase plan. The purchase plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed
55
<PAGE>
10% of an employee's compensation, subject to certain limitations. The purchase
plan will be implemented in a series of consecutive offering periods, each
approximately six months in duration. The purchase price of each share of
common stock under the purchase plan will be equal to 85% of the lesser of the
closing price per share of the common stock on the NASDAQ National Market
System on the start date of that offering period and on the date of termination
of the offering period. Employees may modify or end their participation in the
purchase plan at any time prior to the termination date of an offering period.
An employee's participation ends on the employee's termination of employment
with Broadview. The purchase plan will terminate in 2010 unless sooner
terminated by our board of directors.
401(k) Plan
We have adopted a tax-qualified employee savings and retirement plan
covering all of our full-time employees. Under the 401(k) plan, employees may
elect to reduce their current compensation up to the statutorily prescribed
annual limit and have the amount of such reduction contributed to the plan. We
match our employees' contributions up to a maximum amount of 50% of the first
3% of their base salaries by contributing cash to the 401(k) plan. The 401(k)
plan is intended to qualify under Section 401 of the Code so that contributions
by employees and us to the 401(k) plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
plan. The trustees under the 401(k) plan, at the direction of each participant,
invest such participant's assets in the plan in selected investment options.
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<PAGE>
CERTAIN TRANSACTIONS
The Securities Purchase Agreement and Shareholders' Agreement
On April 23, 1999 we entered into a securities purchase agreement and a
shareholders' agreement with each of our preferred stockholders and our
founding stockholders in connection with our issuance of Series C preferred
stock. On February 2 and February 4, 2000, these agreements were both amended
in connection with our issuance of Series D preferred stock. On February 7,
2000, the shareholders' agreement was further amended in order to modify or
eliminate some of the rights previously granted. Under the shareholders'
agreement, as amended, these stockholders have preemptive rights, voting rights
and registration rights, and are subject to transfer restrictions, as described
below and elsewhere in this prospectus.
The securities purchase agreement contains standard representations and
warranties by us and confidentiality provisions and transfer restrictions.
The shareholders' agreement contains provisions relating to:
. Election of our directors. Following the closing of this offering the
holders of our Series A preferred stock and Series B preferred stock
collectively have the right to designate one director and the holders
of Series C preferred stock and Series D preferred stock collectively
have the right to designate one director. All of our preferred
stockholders and our founding stockholders have agreed to vote all of
their shares in such a manner as to elect these two designees as
directors.
. Preemptive rights with respect to new issuances of common stock. Each
preferred stockholder and founding stockholder generally has the right
to purchase its proportional share, based on its current percentage
ownership, of any capital stock issued by us. These rights have been
waived with respect to this offering and will terminate following the
closing of this offering.
. Source of financing. If we decide to seek equity financing (other than
in connection with this offering), all preferred stockholders have the
first right to make a firm offer to provide that financing on terms
satisfactory to us.
. Transfer restrictions relating to sales of shares of common stock by
the preferred stockholders and the founding stockholders including:
. Rights of first offer. If any preferred stockholder or founding
stockholder wishes to sell its shares, it must give us and the
other preferred stockholders and founding stockholders the
exclusive right, for a period of 15 business days, to purchase
from the selling stockholder any of our common stock held by the
selling stockholder or any stock or security convertible into or
exchangeable for our common stock.
. Tag along rights. If any preferred stockholder or founding
stockholder proposes to sell any of our securities, the other
preferred stockholders and founding stockholders have the right,
for a period of 30 days, to participate in the sale by selling a
proportional share of their stock on the same terms.
None of these provisions and restrictions, other than the preemptive
rights, will terminate on the completion of this offering. The rights and
obligations of the holders of Series A and Series B preferred stock will
terminate at the time they no longer collectively hold at least 5% of our
fully-diluted common stock. The rights and obligations of the holders of Series
C and Series D preferred stock will terminate at the time they no longer
collectively hold at least 5% of our fully-diluted common stock.
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<PAGE>
Series C Bridge Financing
On February 26, 2000, we borrowed a total of $4 million from holders of
Series B preferred stock. This loan was evidenced by a demand note paying 5%
interest. Under the terms of the loan, we had the option of repaying the debt
in cash or in additional shares of Series B preferred stock, and the lenders
would be granted warrants to purchase common stock if the debt was not repaid
in full within 60 days. We paid this debt in full in cash with proceeds from
the sale of Series C preferred stock on April 23, 1999.
Registration Rights
We have granted registration rights to our preferred stockholders with
respect to the common stock they now hold and the common stock they will
receive following the closing of this offering. These holders have the benefit
of the following demand registration:
. The majority of the holders of Series C preferred shares and the
Series D preferred shares and the majority of the holders of Series A
preferred shares and the Series B preferred shares may each demand two
registrations on Form S-1 or, if available, on Form S-2 or S-3 or any
similar short form of registration. However, we are not obligated to
effect any demand registration within 120 days following the effective
date of a previous demand registration or other registration of our
securities that is an underwritten offering.
In addition, stockholders that have been granted registration rights have
unlimited piggyback registration rights under which they have the right to
request that we register their shares of common stock whenever we register any
of our securities under the Securities Act of 1933, following their written
request for inclusion within 30 days after the receipt of our notice, and the
registration form to be used may be used for the registration of their shares
of common stock. These piggyback registration rights will not, however, be
available in the following circumstances:
. If the piggyback registration is in connection with an underwritten
registration and the managing underwriter concludes that including
shares of common stock owned by holders of piggyback registration
rights would adversely affect the marketing of the securities to be
sold in the underwritten offering; or
. For registrations undertaken because of a demand registration.
Terms of Indebtedness
In October 1999 we entered into a Loan and Security Agreement with NTFC
Capital Corporation, which established a vendor financing facility in the
maximum principal amount of $36 million plus capitalized interest. Under the
terms of this facility, at least 60% of the aggregate principal amount we
borrow must be used for the purchase of Northern Telecom equipment and related
services associated with the installation and operation of Northern Telecom
equipment. As collateral, NTFC Capital Corporation obtained a continuing
security interest in all equipment financed or refinanced with proceeds from
the loan, all general intangibles and intangible property, and all proceeds. At
December 31, 1999, $6.9 million under the facility was outstanding with an
average interest rate of 11.7%.
The outstanding debt becomes due in monthly installments to be repaid by or
before November 1, 2007. Principal and capitalized interest on each advance is
payable according to the following amortization schedule. Interest is
capitalized and added to the principal amount over a twelve-month period. On
the last day of the 12th calendar month following the date of the advance, the
"conversion
58
<PAGE>
date," principal amounts and interest will be amortized and repaid monthly in
arrears over 48 consecutive months in payments of principal calculated as
follows:
. the first 12 payments of principal will each be equal to 0.833% of the
principal amount, including interest, of the advance as of the
conversion date;
. the next 12 payments will be each equal to 1.667% of the principal
amount, including interest, of the advance as of the conversion date;
. the next 12 payments will each be equal to 2.50% of the principal
amount, including interest, of the advance as of the conversion date;
and
. the next 12 payments will each be equal to 3.33% of the principal
amount, including interest, of the advance as of the conversion date.
The agreement contains various restrictive covenants, including among
others, limitations on our ability and the ability of our subsidiaries to do
the following things:
. Pay dividends and make other distributions on capital stock and redeem
capital stock. We may not make any equity payments to any person
without NTFC Capital Corporation's written consent.
. Incur additional indebtedness or refinance existing
indebtedness. Except for trade payables and various subordinated,
unsecured indebtedness, we may not incur additional indebtedness in
excess of certain limitations determined pursuant to our financial
covenants.
. Incur responsibility for contingent obligations. We may not assume
contingent obligations other than those contemplated by our agreement
with NTFC Capital Corporation.
. Create liens on our assets. We may not create liens on any of our
property except for:
. liens created by our agreement with NTFC Capital Corporation; and
. liens arising in the ordinary course of business and similar
encumbrances which do not materially detract from the value of our
property.
. Engage in transactions with stockholders and affiliates. Except for
employment agreements entered into in the ordinary course of business
and permitted disbursements to our subsidiaries, we may not enter into
any transactions, including loans or advances, with our affiliates.
. Make investments, advances and loans. Other than in the ordinary
course of business or as permitted disbursements to our subsidiaries,
we may not make any advance, loan, guarantee of indebtedness or
capital contribution to any person without the consent of NTFC Capital
Corporation.
. Enter into agreements to lease personal property. We may only enter
into leases of personal property in excess of $100,000 which are in
the ordinary course of business and after we comply with various
financial covenants listed in our agreement with NTFC Capital
Corporation.
. Remove collateral from various locations. We may not remove any
material part of the collateral under our agreement from specified
locations without written notice to NTFC Capital Corporation and
without ensuring the continuation of NTFC Capital Corporation's
perfected security interest in the collateral.
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<PAGE>
. Make capital expenditures inconsistent with our business plan. We may
not acquire any fixed or capital assets that are inconsistent with the
business plan we submitted to NTFC Capital Corporation.
. Transact business under assumed names. We may not transact business
under assumed names not listed in our agreement with NTFC Capital
Corporation.
. Engage in mergers and consolidations. We are limited in our ability to
enter into any transaction of merger, acquisition or consolidation, to
change our name, corporate structure or fiscal year or to modify our
organizational documents.
. Sell assets. We may only sell the collateral given to NTFC Capital
Corporation in the ordinary course of business or with the permission
of NTFC Capital Corporation.
Events of default under the vendor financing facility include, among other
things:
. payment defaults;
. covenant defaults;
. failure of conditions;
. involuntary and voluntary bankruptcy;
. non-compliance with governmental requirements; and
. default under third party agreements.
We are negotiating with a number of financial institutions for a senior
credit facility in an aggregate principal amount of between $125 and $175
million. It is expected that such a facility, if obtained, would incorporate or
replace our vendor credit facility and would be in place within the next
several months. We have not entered into an agreement or executed a letter of
intent with any of these institutions, and there is no guarantee that we will
do so in the future.
Stock Sales to Senior Management
On September 23, 1999, in connection with his hiring, Joel D. Gross was
granted an option to purchase 830,000 shares of common stock at an exercise
price of $3.75 per share. This option becomes exercisable over time, with the
initial 25%, or 207,500 shares, vesting upon the closing of this offering and
the remainder vesting in equal monthly installments following the first
anniversary of the grant date. On the same date, Mr. Gross also purchased
370,000 shares of common stock at a price of $3.75 per share, or an aggregate
purchase price of $1,387,500.
On February 2, 2000, in connection with our Series D preferred stock
financing, Baker Communications Fund, L.P. assigned a portion of its right to
purchase Series D preferred stock to Mr. Gross, who simultaneously exercised
that right and purchased 214,534 shares of Series D preferred stock for an
aggregate purchase price of $999,998.75.
On December 20, 1999, in connection with his hiring, Kenneth A. Shulman was
granted options to purchase 250,000 shares of common stock at an exercise price
of $6.40. This option becomes exercisable over time, with the initial 25%, or
62,500 shares, vesting upon the closing of this offering and the remainder
vesting in equal monthly installments following the first anniversary of the
grant date. On November 30, 1999, Mr. Shulman also purchased 100,000 shares of
common stock at a price of $6.40 per share or an aggregate purchase price of
$640,000.
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<PAGE>
On December 1, 1999, in connection with his hiring, George F. Holland was
granted an option to purchase 300,000 shares of common stock at a purchase
price of $6.40 per share. This option becomes exercisable over time, with the
initial 25%, or 75,000 shares, vesting on the first anniversary of the grant
date and the remainder vesting in equal monthly installments following the
first anniversary. On the same date, Mr. Holland also purchased 250,000 shares
of common stock at a price of $6.40 per share, or an aggregate purchase price
of $1,600,000. Mr. Holland paid $640,000 of the purchase price for 100,000 of
these shares in cash and paid the remaining $960,000 for 150,000 of these
shares with a full recourse promissory note.
Under the terms of the promissory note, Mr. Holland must pay us the
principal sum of $960,000, together with interest on the unpaid principal
balance at the rate of 6.47% per year, compounded annually, until the note is
paid in full. Principal and interest must be paid in full on December 1, 2009.
If Mr. Holland sells any of his shares, he must make a prepayment on the note
equal to the net proceeds of the sale. The note will become immediately due and
payable after an event of default, including default in payment or insolvency.
Mr. Holland may prepay the note in whole or in part at any time, without
penalty.
On February 3, 2000, several of our executive officers were granted options
to purchase shares of common stock at an exercise price of $9.00 per share
under the 2000 Long-Term Incentive Plan. Colm Kelly was granted options to
purchase 50,000 shares; Tracy Korman was granted options to purchase 150,000
shares; Vern Kennedy was granted options to purchase 590,000 shares; Eric Roden
was granted options to purchase 40,000 shares; and Terrence J. Anderson was
granted options to purchase 150,000 shares.
Stock Repurchase from Senior Management
On June 15, 1999, we repurchased 100,000 shares of common stock from
Terrence J. Anderson at an aggregate purchase price of $200,000.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table lists various information with respect to the
beneficial ownership of our common stock as of March 15, 2000, adjusted to
reflect the sale of shares of common stock offered in this prospectus and the
related conversion into shares of common stock on a one-for-one share basis of
our Series A preferred stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock immediately preceding this offering, by:
. each person or entity who is known by us to beneficially own five
percent or more of the outstanding shares of our common stock;
. each director;
. each Named Executive Officer; and
. all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Owned(1)(2)
Number of Shares -----------------
Beneficially Before After
Name Owned(1) Offering Offering
- ---- ---------------- -------- --------
<S> <C> <C> <C>
Baker Communications Fund, L.P.(3)......... 6,516,556 25.43% 19.97%
Communications Ventures II, L.P. .......... 2,991,159 11.67% 9.17%
Communications Ventures Affiliates Fund II,
L.P. ..................................... 245,098 * *
ComVentures, as a group(4)................. 3,236,257 12.63% 9.92%
New Enterprise Associates VII, L.P......... 3,228,998 12.60% 9.90%
NEA Presidents Fund........................ 47,859 * *
NEA Ventures 1998, L.P..................... 2,900 * *
New Enterprise Associates, as a group(5)... 3,279,757 12.80% 10.05%
WPG Enterprise Fund III, LLC............... 1,230,186 4.80% 3.77%
Weiss, Peck & Greer Venture Associates IV,
LLC....................................... 1,406,329 5.49% 4.31%
Weiss, Peck & Greer Venture Associates IV
Cayman, L.P. ............................. 177,581 * *
WPG Information Sciences Entrepreneur Fund,
L.P....................................... 52,067 * *
Weiss, Peck & Greer Venture Partners, as a
group(6).................................. 2,866,163 11.18% 8.78%
The State of Michigan Retirement
Systems(7)................................ 2,038,075 7.95% 6.25%
Vern M. Kennedy............................ 1,660,830 6.48% 5.09%
Eric G. Roden.............................. 83,332 * *
Colm D. Kelly.............................. 195,460 * *
Terrence J. Anderson....................... 730,270 2.85% 2.24%
Tracy W. Korman............................ 588,700 2.28% 1.80%
Heidi B. Heiden............................ 20,000 * *
Stuart A. Mencher.......................... 20,000 * *
Edward W. Scott(8)......................... 6,516,556 25.43% 19.97%
Roland A. Van der Meer(9).................. 3,236,257 12.63% 9.92%
Directors & Executive Officers as a group
(12 persons)(10).......................... 13,985,939 54.01% 42.52%
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of common stock
subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of March 15, 2000 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Except
for Mr. Scott and Mr. Van der Meer, and as required by applicable
community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
his or its name.
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Except as indicated in the footnotes, the address of each of the persons
in this table is: c/o Broadview Networks Holdings, Inc., 45-18 Court
Square, Suite 300, Long Island City, New York 11101.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Baker Communications Fund, L.P.'s address is c/o Baker Capital Corp., 540
Madison Avenue, New York, New York 10022.
(4) The ComVentures group consists of Communications Ventures II, L.P. and
Communications Ventures Affiliates Fund II, L.P. The address for each
entity in this group is c/o ComVentures, 505 Hamilton Avenue, Palo Alto,
California 94301.
(5) Represents 3,228,998 shares held by New Enterprise Associates VII, L.P.,
47,859 shares held by NEA Presidents Fund and 2,900 shares held by NEA
Ventures 1998, L.P. The general partner of New Enterprise Associates VII,
L.P. is NEA Partners VII, L.P. The general partner of NEA Presidents Fund
is NEA General Partners, L.P. The general partner of NEA Ventures 1998,
L.P. is Louis V. Van Dyck. The address for each New Enterprise Associates
entity in this group is c/o New Enterprise Associates, One Freedom Square,
11951 Freedom Drive, Suite 1240, Reston, Virginia 20190.
(6) Represents 1,230,186 shares held by WPG Enterprise Fund III, LLC,
1,406,329 shares held by Weiss, Peck & Greer Venture Associates IV, LLC,
177,581 shares held by Weiss, Peck & Greer Venture Associates IV Cayman,
L.P. and 52,067 shares owned by WPG Information Sciences Entrepreneur
Fund, L.P. WPG VC Fund Adviser, LLC is the Investment Advisory Member of
WPG Enterprise Fund III, LLC, Weiss, Peck & Greer, Venture Associates IV,
LLC and Weiss, Peck & Greer Venture Associates IV Cayman, L.P. WPG VC Fund
Adviser, LLC is the general partner of WPG Information Sciences
Entrepreneur Fund, L.P. Barry Eggers is the Managing Member of WPG VC Fund
Adviser, LLC. The address for each entity in this group is c/o Weiss, Peck
& Greer Venture Partners, 555 California Street, San Francisco, California
94104.
(7) The State Treasurer of the State of Michigan, as Custodian of the Michigan
Public School Employees' Retirement System, State Employees' Retirement
System and Michigan State Police Retirement System. The address for this
stockholder is Michigan Department of Treasury, Alternative Investment
Division, 2501 Coolridge Road, Suite 400, East Lansing, Michigan 48823.
(8) All of the shares indicated are owned by Baker Communications Fund, L.P.
Baker Capital Partners, LLC is general partner of Baker Communications
Fund, L.P. Edward W. Scott, a director of Broadview, is a general partner
of Baker Communications Fund, L.P. Mr. Scott disclaims beneficial
ownership of the shares held by Baker Communications Fund, L.P. except to
the extent of his pecuniary interest in Baker Communications Fund, L.P.
(9) All of the shares indicated are owned Communications Ventures II, L.P. and
Communications Ventures Affiliates Fund II, L. P. ComVen II, LLC is
general partner of both Communications Ventures II, L.P. and
Communications Ventures Affiliates Fund II, L.P. Roland A. Van der Meer is
a member of ComVen II, LLC. Mr. Van der Meer disclaims beneficial
ownership of the shares held by ComVen II, LLC except to the extent of his
pecuniary interest in ComVen II, LLC.
(10) Includes an aggregate of 8,333 shares of common stock subject to options
held by directors and executive officers which are exercisable within 60
days of February 5, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of our capital stock is qualified in its
entirety by reference to the applicable provisions of Delaware law and our
certificate of incorporation and bylaws.
Our certificate of incorporation authorizes the issuance of up to 160
million shares of capital stock, consisting of 150 million shares of common
stock, par value $0.01 per share, and 10 million shares of preferred stock, par
value $0.01 per share.
The common stock and the preferred stock that may be issued under our
certificate of incorporation are described below.
Common Stock
Shares of common stock have the following rights, preferences and
privileges.
Voting Rights. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of our stockholders, including the
election of directors. There is no cumulative voting in the election of
directors.
Stockholders may not act by written consent and must act on all proposals
at an annual or special meeting.
Dividends, Distributions and Stock Splits. Holders of common stock are
entitled to receive dividends at the same rate if and when such dividends are
declared by our board of directors out of assets legally available therefor
after payment of dividends required to be paid on shares of preferred stock, if
any.
Liquidation. In the event of any dissolution, liquidation, or winding up of
our affairs whether voluntary or involuntary, after payment of our debts and
other liabilities and making provision for the holders of preferred stock, if
any, our remaining assets will be distributed ratably among the holders of the
common stock.
All shares of common stock outstanding are fully paid and nonassessable,
and all the shares of common stock to be outstanding upon completion of this
offering will be fully paid and nonassessable.
Preferred Stock
Shares of preferred stock have the following rights, preferences and
privileges. All outstanding shares of our Series A, Series B, Series C and
Series D preferred stock will be converted into 17,561,703 shares of common
stock following the closing of this offering.
Series A Convertible Preferred Stock. On January 29, 1998, we issued
3,446,070 shares of Series A convertible preferred stock to Communications
Ventures II, L.P., Communications Ventures Affiliates Fund II, L.P., New
Enterprise Associates VII, L.P., NEA Presidents Fund, NEA Ventures 1998, L.P.
WPG Enterprise Fund III, LLC, Weiss, Peck & Greer Venture Associates IV, LLC,
Weiss, Peck & Greer Venture Associates IV Cayman L.P. and WPG Information
Sciences Entrepreneur Fund L.P. for $5,970,384, net of $30,531 in fees and
expenses. The Series A preferred stock is convertible, at the option of the
holder, into shares of common stock at any time. The conversion ratio is 1:1,
subject to the investors' anti-dilution protection rights. The Series A
preferred stock automatically converts:
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<PAGE>
. after the closing of our registration statement on a Form S-1 at a per
share price of at least $6.97 or at an aggregate public offering price
of no less than $15.0 million, prior to underwriting, commissions and
expenses; or
. at the election of holders of a majority of the then outstanding Series
A preferred stock, voting together as a single class, at the current
conversion ratio. If we are liquidated, holders of Series A preferred
stock are entitled to receive, before any amount is paid to holders of
common stock but after payments to holders of Series C preferred stock
and Series D preferred stock, an amount per share equal to $1.74, as
adjusted for any stock dividends, combinations or splits, plus all
declared but unpaid dividends, if any. The Series A preferred stock
carries voting rights equal to one vote per share, on an as if converted
basis. Holders of the Series A preferred stock are entitled to receive
dividends at the discretion of our board of directors. No dividends have
been declared on the Series A preferred stock.
Series B Convertible Preferred Stock. On September 11, 1998, we issued
1,838,799 shares of Series B Convertible preferred stock to Communications
Ventures II, L.P., Communications Ventures Affiliates Fund II, L.P., New
Enterprise Associates VII, L.P., NEA Presidents Fund, WPG Enterprise Fund III,
LLC, Weiss Peck & Greer Venture Associates IV, LLC, Weiss Peck & Greer Venture
Associates IV Cayman L.P. and WPG Information Sciences Entrepreneur Fund, L.P.
for $5,969,470, net of $30,531 in fees and expenses. The Series B preferred
stock is convertible, at the option of the holder, into shares of common stock
at any time. The conversion ratio is 1:1, subject to the investors' anti-
dilution protection rights. The Series B preferred stock automatically
converts:
. after the closing of our registration statement on a Form S-1 at a per
share price of at least $6.97 or at an aggregate public offering price
of no less than $15.0 million, prior to underwriting, commissions and
expenses; or
. at the election of holders of more than 50% of the then outstanding
Series B preferred stock, voting together as a single class, at the
current conversion ratio. In the event of liquidation, holders of Series
B preferred stock are entitled to receive, before any amount is paid to
holders of common stock, an amount per share equal to $3.26, as adjusted
for any stock dividends, combinations or splits, plus all declared but
unpaid dividends, if any. The Series B preferred stock carries voting
rights equal to one vote per share, on an as converted basis. Holders of
the Series B preferred stock are entitled to receive dividends at the
discretion of our board of directors. No dividends have been declared on
the Series B preferred stock.
Series C Mandatorily Redeemable Convertible Preferred Stock. On April 23,
1999 we issued 6,269,875 Series C mandatorily redeemable convertible preferred
stock to Baker Communications Fund, L.P., Communications Ventures II, L.P.,
Communications Ventures Affiliates Fund II, L.P., New Enterprise Associates
VII, L.P., WPG Enterprise Fund III, LLC, Weiss, Peck & Greer Venture Associates
IV Cayman, L.P. and WPG Information Sciences Entrepreneur Fund L.P. for
$27,795,875, net of $204,125 fees and expenses. This issue has a stated
liquidation preference of $4.46580 per share, plus all accrued and unpaid
dividends whether or not declared ("Series C liquidation preference") and is
senior in liquidation to the Series A preferred stock and Series B preferred
stock, and all common stock. Holders of the Series C preferred stock have the
right to convert their shares into common stock at any time. The conversion
ratio is 1:1, subject to certain antidilution rights, as defined. Holders of
Series C preferred stock are entitled to receive, at the discretion of our
board of directors, cumulative preferential dividends at an annual rate of 8%
of the Series C liquidation preference. The Series C preferred stock carries
voting rights equal to one vote per share, on an as converted basis. In
addition, holders of Series C preferred stock, voting as a class, have veto
rights on specific corporate actions. At any time after April 23, 2005, the
Series C
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<PAGE>
preferred stock is redeemable at the option and written election of the holders
of at least 50% of the Series C preferred stock within one year of such
election at the greater of:
. the fair market value of the common stock underlying the Series C
preferred stock to be redeemed, as defined, or
. the aggregate Series C liquidation preference of the Series C preferred
stock to be redeemed. No dividends have been declared on the Series C
preferred stock.
Series D Mandatorily Redeemable Convertible Preferred Stock. On February 2
and February 4, 2000 we issued a total of 6,006,959 shares of Series D
mandatorily redeemable convertible preferred stock to Baker Communications
Fund, L.P., Joel Gross, the State Treasurer of the State of Michigan, as
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System and Michigan State Police Retirement System,
Communications Ventures II, L.P., Communications Ventures Affiliates Fund II,
L.P., New Enterprise Associates VII, L.P., WPG Enterprise Fund III, LLC, Weiss,
Peck & Greer Venture Associates IV Cayman, L.P. and WPG Information Sciences
Entrepreneur Fund L.P. for $27,950,000, net of approximately $50,000 fees and
expenses. This issue has a stated liquidation preference of $4.66126 per share,
plus all accrued and unpaid dividends whether or not declared ("Series D
liquidation preference") and is senior in liquidation to the Series A preferred
stock and Series B preferred stock, and all common stock. Holders of the Series
D preferred stock have the right to convert their shares into common stock at
any time. The conversion ratio is 1:1, subject to certain antidilution rights,
as defined. Holders of Series D preferred stock are entitled to receive when,
as and if, dividends are declared by our board of directors, cumulative
preferential dividends at an annual rate of 8% of the Series D liquidation
preference. The Series D preferred stock carries voting rights equal to one
vote per share, on an as converted basis. In addition, holders of Series D
preferred stock, voting as a class, have veto rights on specific corporate
actions. At any time after April 23, 2005, the Series D preferred stock is
redeemable at the option and written election of the holders of a majority of
the Series D preferred stock within one year of the election at the greater of:
. the fair market value of the common stock underlying the Series D
preferred stock to be redeemed, or
. the aggregate Series D liquidation preference of the Series D preferred
stock to be redeemed. No dividends have been declared on the Series D
preferred stock.
New Preferred Stock. Upon the closing of this offering, the board of
directors will have the authority, without further action by the stockholders,
to issue up to 10 million shares of preferred stock, $0.01 par value, in one or
more series and to fix the designations, powers, preferences, privileges, and
relative participating options, or special rights and the qualifications,
limitations, or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the common stock. The board of
directors, without stockholder approval, can issue preferred stock with voting,
conversion, or other rights that could adversely affect the voting power and
other rights of the holders of common stock. Preferred stock could thus be
issued with terms calculated to delay or prevent a change in our control or
make removal of management more difficult. Additionally, the issuance of
preferred stock may have the effect of decreasing the market price of the
common stock, and may adversely affect the voting and other rights of the
holders of common stock. Upon the completion of this offering, there will be no
shares of preferred stock outstanding and we have no current plans to issue any
of the preferred stock.
Warrants
We granted warrants to purchase a total of 344,520 shares of common stock
to the purchasers of Series A preferred stock. Each warrant could be exercised
at any time after August 1, 1998 at a price of $0.01 per share. As of the
effective date of the re-incorporation of the Company in the State of Delaware,
the warrants were terminated.
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<PAGE>
We granted warrants to purchase a total of 612,183 shares of common stock
to the purchasers of Series B preferred stock. Each warrant could be exercised
at any time after the closing of the transaction at a price of $0.001 per
share. The fair value of the warrants at the time of grant was approximately
$1,065,000. As a result of the closing of the Series C preferred stock on April
23, 1999, 459,139 warrants issued to the investors of Series B preferred stock
were exercised for 459,139 shares of common stock and the balance of the
warrants was terminated.
Registration Rights of Certain Holders
We have granted registration rights to holders of our Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D
preferred stock who will become common stockholders upon effectiveness of this
offering when their preferred stock is converted to our common stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Section 203 of the Delaware General Corporation Law. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law, an anti-
takeover law. In general, 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 date of the transaction in
which the person became an interested stockholder, unless:
. the transaction is approved by the board of directors prior to the
date the "interested stockholder" obtained such status;
. 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 by:
(a)persons who are directors and also officers; and
(b) 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
. on or subsequent to such date the "business combination" is approved
by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns or within three years did own, 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to our company and, accordingly, may
discourage attempts to acquire us.
Stockholders may, by adopting an amendment to our certificate of
incorporation or bylaws, elect for us not to be governed by Section 203,
effective 12 months after adoption. Neither our certificate of incorporation
nor our bylaws exempt us from the restrictions imposed under Section 203 of the
Delaware General Corporation Law. It is anticipated that the provisions of
Section 203 of the Delaware General Corporation Law may encourage companies
interested in acquiring us to negotiate in advance with the board of directors
because the stockholder approval requirement would be avoided if a majority of
the directors then in office approve either the business combination or the
transaction that results in the stockholder becoming an interested stockholder.
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Classified Board of Directors. Following completion of the offering, our
board of directors will be divided into three classes of directors. The first
class will consist of one director and the second and third classes will each
consist of two directors. Each class will serve a staggered three-year term. As
a result, only one or two members of the board of directors will be selected
each year, and a director will generally stand for election only once every
three years. The board of directors believes that a classified board will help
to assure the continuity and stability of the board and our business strategies
and policies. The classified board provision could have the effect, however, of
discouraging a third party from making a tender offer or otherwise attempting
to obtain control of our company, even though the attempt might be beneficial
to us and our stockholders. In addition, the classified board provision could
delay stockholders who do not agree with the policies of the board from
removing a majority of the board for two years. A vote of the holders of at
least two-thirds of our common stock is required to change the classified board
provision.
Other Provisions. Following completion of this offering, our certificate of
incorporation and bylaws will provide, in general, that:
. any vacancy or newly created directorship on the board of directors
will be filled by a majority of, the directors in office with any new
director to serve for the remaining term of the class of directors to
which he or she is elected;
. directors may be removed by our stockholders only for cause and by a
vote of the holders of at least two-thirds of our stock (both common
and preferred) entitled to vote generally in the election of directors
("voting stock");
. special meetings of stockholders may be called only by the board of
directors or a committee of the board of directors expressly
authorized to call a special meeting, and the business permitted to be
conducted at a special meeting is limited to business brought before
the meeting by the board of directors;
. election of directors and votes regarding amendments to the
certificate of incorporation or bylaws must be by written ballot; and
. stockholders may not act by written consent and must act on all
proposals at an annual or special meeting.
Our bylaws also require that stockholders wishing to bring any business,
including director nominations, before an annual meeting of stockholders
deliver written notice to us not later than 60 days or more than 90 days prior
to the date on which we first mailed our proxy materials for the prior year's
annual meeting of stockholders. If, however, our annual meeting is set for a
date that is not within 30 calendar days of the anniversary of the prior year's
meeting, notice by the stockholder must be delivered to us not later than the
close of business on the tenth day following the day on which we publicly
announce the date of our annual meeting. Our bylaws further require that the
notice by the stockholder list, among other things:
. A description of the business to be brought before the annual meeting,
including information with respect to a nominated director;
. The reasons for conducting the business at the meeting; and
. Specific information concerning the stockholder proposing the business
and the beneficial owner, if any, on whose behalf the proposal is
made.
Our certificate of incorporation and bylaws state that the provisions
summarized in this section and the provisions relating to the classification of
the board of directors may not be amended by our stockholders, nor may any
provision inconsistent with the certificate of incorporation or bylaws be
adopted by our stockholders, without the affirmative vote of the holders of at
least two-thirds of our voting stock, voting together as a single class.
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The above provisions of our certificate of incorporation and bylaws
relating to removal of directors, special meetings of stockholders and advance
notice of stockholder proposals may discourage or make more difficult the
acquisition of control of us by means of a tender offer, open market purchase,
proxy contest or otherwise. These provisions may have the effect of
discouraging specific types of coercive takeover practices and inadequate
takeover bids and may encourage persons seeking to acquire control of us first
to negotiate with the board of directors. We believe that these measures will
benefit us and our stockholders by enhancing our ability to negotiate with the
proponent of any unfriendly or unsolicited proposal to acquire or restructure
us. We also believe that the benefits outweigh the disadvantages of
discouraging these proposals because, among other things, negotiation of these
proposals could result in better terms.
Limitation of Liability and Indemnification of Directors
Our certificate of incorporation provides for the indemnification of
directors to the fullest extent permissible under the Delaware General
Corporation Law. Among other things, our certificate of incorporation contains
provisions that eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in circumstances involving
some wrongful acts, including:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derives an improper
personal benefit.
Our bylaws also contain provisions indemnifying our directors and officers
to the fullest extent permitted by the Delaware General Corporation Law.
We have also entered into a directors indemnification agreement with each
of our directors. Under the terms of each agreement, we agree to indemnify the
director to the fullest extent permitted by law, irrespective of whether the
indemnification is authorized by our certificate of incorporation, bylaws, or
Delaware General Corporation Law. We agree to indemnify each director for
expenses, including attorneys' fees, judgments and fines incurred with respect
to any litigation or proceeding related to the fact that the director is our
director or fiduciary. This includes indemnification for liability arising from
(i) the declaration of dividends to stockholders in the absence of a surplus,
(ii) the approval of the issuance of securities and the failure to register the
securities under relevant securities laws, and (ii) the approval of amendments
to stock option plans without obtaining necessary consents.
These provisions including the provisions of our certificate of
incorporation, do not limit or eliminate our rights or rights of any
stockholder to seek non-monetary relief, such as an injunction or rescission,
in the event of a breach of a director's fiduciary duty. These provisions will
not alter a director's liability under federal securities laws. We believe that
these provisions are necessary to attract and retain qualified individuals to
serve as directors and officers.
Listing
We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the trading symbol "BDVU."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is EquiServe Trust
Company. Its address is 525 Washington Boulevard, Jersey City, NJ 07310, and
its telephone number at this location is (201) 324-1225.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of the common stock prevailing from time
to time. Nevertheless, sales of substantial amounts of common stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our future ability
to raise capital through the sale of our equity securities.
Upon completion of this offering and the related conversion into shares of
common stock on a one-to-one basis of the Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock, we will
have an aggregate of 32,627,116 shares of common stock outstanding, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options. Of these outstanding shares, the 7,000,000 shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by our
"affiliates," as that term is defined in Rule 144 promulgated under the
Securities Act, will be deemed "restricted securities," as defined in Rule 144,
and may only be sold in compliance with the limitations described below.
Restricted securities may be sold in the public market only if such securities
are registered under the Securities Act or if they qualify for an exemption
from registration under Rule 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 144(k) and 701,
this leaves 25,627,116 additional shares eligible for sale in the public market
as follows:
<TABLE>
<CAPTION>
Number of
Shares Date of first availability for resale
---------- -------------------------------------
<C> <S>
58,744 Immediately after the date of this prospectus
29,959 90 days from the date of this prospectus (Rule 144)
25,538,413 At various times after 180 days from the date of this prospectus
(subject, in some cases, to volume limitations)
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are required to
be aggregated, such as an affiliate, who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of
. 1% of the then outstanding shares of our common stock, which will
equal approximately 326,271 shares immediately after this offering, or
. 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 manner of sale restrictions and
notice requirements and to the availability of current public information about
us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at
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least two years would be entitled to sell such shares under Rule 144(k) without
regard to the volume, manner of sale and notice requirements mentioned above.
To the extent that shares were acquired from an affiliate, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with some of the restrictions, including the holding period, contained in Rule
144. As of the date of this prospectus, options to purchase a total of
6,140,417 shares of common stock are outstanding, of which 982,244 are
currently exercisable unless subject to the 180-day lock-up period described
below.
Within 180 days following the closing of this offering, we intend to file a
registration statement on Form S-8 to register for resale the 4.1 million
shares of common stock issued or reserved for issuance under our 1997 Stock
Option Plan and the 5.2 million shares of common stock issued or reserved for
issuance under our 2000 Long-Term Incentive Plan. Such registration statement
will automatically become effective upon filing. Accordingly, shares covered by
that registration statement will then be eligible for sale in the public
markets, unless these options are subject to vesting restrictions or the lock-
up agreements referred to below.
Lock-Up Agreements
Directors and officers and various stockholders who hold 25,534,980 shares
in the aggregate, together with the holders of options to purchase 4,670,361
shares of common stock, have agreed that they will not sell, directly or
indirectly, any shares of common stock, other than those obtained in the
directed share program, without the prior written consent of Goldman, Sachs &
Co. for a period of 180 days from the date of this prospectus.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus without
Goldman Sachs' prior written consent, except we may issue, and grant options to
purchase, shares of common stock under the 2000 Long Term Incentive Plan and
2000 Employee Stock Purchase Plan.
Registration Rights
Following this offering, under various circumstances and subject to various
conditions, holders of 18,151,342 shares of our outstanding common stock prior
to this offering will have certain demand registration rights with respect to
their shares of common stock, subject to the 180 day lock-up arrangement
described above, to require that we register their shares of common stock under
the Securities Act, and they will have certain rights to participate in any
future registration of securities by us. We are not required to effect more
than an aggregate of three demand registrations on behalf of such holders.
These holders are subject to lock-up periods of not more than 180 days
following the date of this prospectus or any subsequent prospectus.
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UNDERWRITING
Broadview Networks and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co., Bear,
Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation are
the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Bear, Stearns & Co. Inc. ...................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
---
Total.....................................................
===
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,050,000 shares from Broadview Networks to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Broadview Networks. Such
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Broadview Networks
--------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all of the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
Broadview Networks and its directors, officers and stockholders have agreed
with the underwriters not to dispose of or hedge any of its common stock or
securities convertible into or exchangeable for shares of common stock, other
than shares obtained in the directed share program, during the period from the
date of this prospectus continuing through the date 180 days after the date of
this prospectus, except with the prior written consent of the representatives.
This agreement does not apply to any existing employee benefit plans. See
"Shares Eligible for Future Sale" for a discussion of certain transfer
restrictions.
At Broadview Networks' request, the underwriters are reserving up to
shares of common stock for sale at the initial public offering price to
directors, officers, employees and friends through a directed share program.
The number of shares of common stock available for sale to the general public
in the offering will be reduced to the extent these persons purchase these
reserved shares. Any shares not so purchased will be offered by the
underwriters to the general public on the same basis as other shares offered
hereby.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Broadview Networks and
the representatives. Among the factors to be
72
<PAGE>
considered in determining the initial public offering price of the shares, in
addition to prevailing market conditions, will be Broadview Networks'
historical performance, estimates of the business potential and earnings
prospects of Broadview Networks, an assessment of Broadview Networks'
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Broadview Networks has applied for quotation of the common stock on the
Nasdaq National Market under the symbol "BDVU."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
A prospectus in electronic format may be made available on the websites
maintained by one or more underwriters or securities dealers. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the lead managers to underwriters that may make internet distributions on the
same basis as other allocations. In addition, shares may be sold by the
underwriters to securities dealers who resell shares to online brokerage
account holders.
Broadview Networks estimates that its share of the total expenses of this
offering, excluding underwriting discounts and commission, will be
approximately $2,200,000.
Broadview Networks has agreed to indemnify the separate underwriters
against various liabilities, including liabilities under the Securities Act of
1933.
73
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for Broadview Networks by Mayer, Brown & Platt, New York, New
York, and for the underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated statements as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION ABOUT BROADVIEW NETWORKS
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered in this prospectus. This prospectus does not contain all
of the information in the registration statement and the exhibits and schedules
contained in it. Various items are omitted following the rules and regulations
of the SEC. For further information with respect to Broadview Networks and the
common stock offered in this prospectus, reference is made to the registration
statement and the exhibits and schedules filed with it. Statements contained in
this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and, in each instance that a copy of
the contract or other document has been filed as an exhibit to the registration
statement, reference is made to the exhibit filed, each relevant statement
being qualified in all respects by the reference.
A copy of the registration statement, and the exhibits and schedules
contained in it, may be inspected without charge at the public reference
facilities maintained by the SEC in Room 1024, 450 Fifth Street., N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies
of all or any part of the registration statement may be obtained from these
offices upon the payment of the fees prescribed by the SEC. You may obtain
information about the operation of these public reference facilities by calling
the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports,
proxy and information statements and other information regarding registrants
that file electronically. The address of the site is http://www.sec.gov.
74
<PAGE>
Broadview Networks Holdings, Inc. and Subsidiaries
Index to the Consolidated Financial Statements
Page
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999.................. F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................................... F-4
Consolidated Statements of Mandatorily Redeemable Securities and
Stockholders' Equity (Deficit) for the years ended December 31, 1997, 1998
and 1999.................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................................... F-6
Notes to the Consolidated Financial Statements............................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Broadview Networks Holdings, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of mandatorily redeemable securities and
stockholders' equity (deficit) and cash flows present fairly, in all material
respects, the financial position of Broadview Networks Holdings, Inc. and its
subsidiaries as of December 31, 1998, and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 4, 2000, except as to Note 18, which is as of March 20, 2000
F-2
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro forma
December 31, as of
-------------------------- December 31,
1998 1999 1999
------------ ------------ ------------
Unaudited
See Note 2
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ 3,052,524 $ 5,572,220
Accounts receivable, net of
allowance of $382,302 and
$1,302,491 at December 31, 1998
and 1999, respectively............ 3,171,920 6,552,341
Note receivable from officer....... -- 640,000
Other current assets............... 472,487 1,280,756
------------ ------------
Total current assets.............. 6,696,931 14,045,317
Restricted certificates of depos-
it................................ 100,000 434,000
Property and equipment, net........ 658,923 15,597,594
Intangible assets, net............. 319,923 --
Other assets....................... 231,198 632,115
------------ ------------
Total assets...................... $ 8,006,975 $ 30,709,026
============ ============
Liabilities, Mandatorily Redeemable
Securities and Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable................... $ 2,489,641 $ 5,817,458
Accrued and other current liabili-
ties.............................. 650,684 5,510,410
Payroll related liabilities........ 363,521 973,903
Taxes payable...................... 531,176 2,216,395
Capital lease obligations.......... 56,563 76,464
Current portions of long term debt
and payable....................... -- 742,268
------------ ------------
Total current liabilities......... 4,091,585 15,336,898
Long term payable.................. -- 1,049,397
Long term debt..................... -- 6,819,683
Capital lease obligations.......... 83,890 109,947
------------ ------------
83,890 7,979,027
------------ ------------
Total liabilities................. 4,175,475 23,315,925
Commitments and contingencies (see
Note 12)
Mandatorily redeemable securities:
Series C convertible preferred
stock, $.01 par value, 6,269,875
shares authorized, issued and
outstanding at December 31, 1999;
no pro forma shares issued and
outstanding....................... -- 38,888,367
Common Stock, $.01 par value,
370,000 shares issued and
outstanding at December 31, 1999;
no pro forma shares issued and
outstanding....................... -- 5,180,000
------------ ------------
Total mandatorily redeemable
securities....................... -- 44,068,367
Stockholders' equity (deficit):
Convertible preferred stock, $.01
par value 5,800,000 and 16,900,000
shares authorized at December 31,
1998 and 1999, respectively; pro
forma 17,600,000 shares authorized
Series A--3,446,070 shares issued
and outstanding at December 31,
1998 and 1999; no pro forma
shares issued and outstanding.... 34,461 34,461
Series B--1,838,799 shares issued
and outstanding at December 31,
1998 and 1999; no pro forma
shares issued and outstanding.... 18,388 18,388
Common stock, $.01 par value,
32,000,000 shares authorized,
6,980,882 and 7,695,413 shares
issued and outstanding at December
31, 1998 and 1999, respectively;
pro forma 36,000,000 shares
authorized, 25,627,116 shares
issued and outstanding............ 69,809 76,954 $ 256,271
Receivable from officer for
issuance of stock................. -- (960,000) (960,000)
Additional paid-in capital......... 15,596,004 33,290,153 105,182,052
Deferred compensation.............. (783,500) (20,401,000) (20,401,000)
Accumulated deficit................ (11,103,662) (48,734,222) (48,734,222)
------------ ------------ ------------
Total stockholders' equity (defi-
cit)............................. 3,831,500 (36,675,266) 35,343,101
------------ ------------ ------------
Total liabilities, mandatorily
redeemable securities and
stockholders equity (deficit).... $ 8,006,975 $ 30,709,026 $ 35,343,101
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues, net.......................... $ 2,070,264 $10,866,123 $ 37,203,295
Operating expenses:
Cost of revenues (excluding
depreciation and amortization)....... 1,759,426 9,506,778 33,964,926
General and administrative (excluding
$9,792,700 of non-cash compensation
in 1999)............................. 1,024,303 4,555,312 16,288,690
Sales and marketing (excluding
$482,275 of non-cash compensation in
1999)................................ 449,056 4,181,043 11,034,222
Software development (excluding
$475,500 and $563,025 of non-cash
compensation in 1998 and 1999,
respectively)........................ 30,000 1,435,650 2,083,658
Depreciation and amortization......... 123,715 610,157 1,059,569
Non-cash compensation................. -- 495,500 10,920,000
----------- ----------- ------------
Total operating expenses.............. 3,386,500 20,784,440 75,351,065
Operating loss........................ (1,316,236) (9,918,317) (38,147,770)
Interest income........................ 18,406 221,248 854,207
Interest expense....................... (4,221) (14,070) (336,997)
----------- ----------- ------------
Net loss............................. (1,302,051) (9,711,139) (37,630,560)
Accretion of Series C mandatorily
redeemable convertible preferred
shares to redemption value............ -- -- (11,092,492)
----------- ----------- ------------
Net loss applicable to common
stockholders.......................... $(1,302,051) $(9,711,139) $(48,723,052)
=========== =========== ============
Basic and diluted net loss per share
applicable to common shareholders..... $ (0.24) $ (1.49) $ (6.73)
=========== =========== ============
Weighted average common shares used in
computing basic and diluted net loss
per share applicable to common
stockholders.......................... 5,391,317 6,510,871 7,238,631
=========== =========== ============
Pro forma basic and diluted net loss
per common share (unaudited).......... $ (2.23)
============
Weighted average shares used in
computing pro forma basic and diluted
net loss per common share
(unaudited)........................... 16,864,162
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE SECURITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Mandatorily Redeemable Securities
----------------------------------------------------
Series C
Convertible Total
Preferred Stock Common Stock Mandatorily
--------------------- ------------------ Redeemable
Shares Amount Shares Amount Securities
--------- ----------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............
Issuance of
common stock in
connection with
business
acquisition.....
Issuance of
common stock....
Issuance of
common stock
options for non-
compete
agreements......
Issuance of
common stock
options for
consulting
services........
Net loss........
Balance at
December 31,
1997............
Issuance of
common stock
options for
consulting
services........
Issuance of
restricted
common stock in
connection with
business
acquisition.....
Deferred
compensation
related to stock
options.........
Amortization of
deferred
compensation....
Issuance of
common stock....
Exercise of
common stock
options.........
Issuance of
Series A
convertible
preferred
stock...........
Issuance of
Series B
convertible
preferred
stock...........
Net loss........
Balance at
December
31,1998.........
Amortization of
deferred
compensation....
Purchase of
treasury stock..
Issuance of
common stock.... 370,000 $1,387,500 $ 1,387,500
Deferred
compensation
related to stock
options.........
Compensation
related to
issuance
of common stock
and common stock
options at below
estimated
fair value...... 3,792,500 3,792,500
Exercise of
common stock
options.........
Exercise of
common stock
warrants........
Issuance of
Series C
mandatorily
redeemable
convertible
preferred
stock........... 6,269,875 $27,795,875 27,795,875
Accertion of
Series C
manditorily
redeemable
convertible
preferred stock
to redemption
value........... 11,092,492 11,092,492
Net loss........
--------- ----------- ------- ---------- -----------
Balance at
December
31,1999......... 6,269,875 $38,888,367 370,000 $5,180,000 $44,068,367
========= =========== ======= ========== ===========
<CAPTION>
Stockholders' Equity (Deficit)
----------------------------------------------------------------------
Series A and B
Convertible
Preferred Stock Common Stock Additional Treasury Stock
----------------- ----------------- Paid-in --------------------
Shares Amount Shares Amount Capital Shares Amount
--------- ------- --------- ------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ 4,495,002 $44,950 $ 356,200
Issuance of
common stock in
connection with
business
acquisition..... 290,000 2,900 297,100
Issuance of
common stock.... 1,441,300 14,413 1,405,587
Issuance of
common stock
options for non-
compete
agreements...... 199,386
Issuance of
common stock
options for
consulting
services........ 10,518
Net loss........
--------- ------- --------- ------- ------------
Balance at
December 31,
1997............ 6,226,302 62,263 2,268,791
Issuance of
common stock
options for
consulting
services........ 18,750
Issuance of
restricted
common stock in
connection with
business
acquisition..... 551,580 5,516 945,484
Deferred
compensation
related to stock
options......... 328,000
Amortization of
deferred
compensation....
Issuance of
common stock.... 87,000 870 149,130
Exercise of
common stock
options......... 116,000 1,160 (1,156)
Issuance of
Series A
convertible
preferred
stock........... 3,446,070 $34,461 5,935,923
Issuance of
Series B
convertible
preferred
stock........... 1,838,799 18,388 5,951,082
Net loss........
--------- ------- --------- ------- ------------
Balance at
December
31,1998......... 5,284,869 52,849 6,980,882 69,809 15,596,004
Amortization of
deferred
compensation....
Purchase of
treasury stock.. (100,000) $(200,000)
Issuance of
common stock.... 250,000 2,500 2,037,500 100,000 200,000
Deferred
compensation
related to stock
options......... 22,335,000
Compensation
related to
issuance
of common stock
and common stock
options at below
estimated
fair value...... 4,410,000
Exercise of
common stock
options......... 5,392 54 8,273
Exercise of
common stock
warrants........ 459,139 4,591 (4,132)
Issuance of
Series C
mandatorily
redeemable
convertible
preferred
stock...........
Accertion of
Series C
manditorily
redeemable
convertible
preferred stock
to redemption
value........... (11,092,492)
Net loss........
--------- ------- --------- ------- ------------ --------- ---------
Balance at
December
31,1999......... 5,284,869 $52,849 7,695,413 $76,954 $33,290,153 -- $ --
========= ======= ========= ======= ============ ========= =========
<CAPTION>
Receivable
from
Officer Total
for Stockholders'
Issuance Accumulated Deferred Equity
of Stock Deficit Compensation (Deficit)
----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at
December 31,
1996............ $ (90,472) $ 310,678
Issuance of
common stock in
connection with
business
acquisition..... 300,000
Issuance of
common stock.... 1,420,000
Issuance of
common stock
options for non-
compete
agreements...... 199,386
Issuance of
common stock
options for
consulting
services........ 10,518
Net loss........ (1,302,051) (1,302,051)
------------- ------------- --------------
Balance at
December 31,
1997............ (1,392,523) 938,531
Issuance of
common stock
options for
consulting
services........ 18,750
Issuance of
restricted
common stock in
connection with
business
acquisition..... $ (951,000) --
Deferred
compensation
related to stock
options......... (328,000) --
Amortization of
deferred
compensation.... 495,500 495,500
Issuance of
common stock.... 150,000
Exercise of
common stock
options......... 4
Issuance of
Series A
convertible
preferred
stock........... 5,970,384
Issuance of
Series B
convertible
preferred
stock........... 5,969,470
Net loss........ (9,711,139) (9,711,139)
------------- ------------- --------------
Balance at
December
31,1998......... (11,103,662) (783,500) 3,831,500
Amortization of
deferred
compensation.... 557,500 557,500
Purchase of
treasury stock.. (200,000)
Issuance of
common stock.... $(960,000) 1,280,000
Deferred
compensation
related to stock
options......... (22,335,000) --
Compensation
related to
issuance
of common stock
and common stock
options at below
estimated
fair value...... 2,160,000 6,570,000
Exercise of
common stock
options......... 8,327
Exercise of
common stock
warrants........ 459
Issuance of
Series C
mandatorily
redeemable
convertible
preferred
stock........... --
Accertion of
Series C
manditorily
redeemable
convertible
preferred stock
to redemption
value........... (11,092,492)
Net loss........ (37,630,560) (37,630,560)
------------ ------------- ------------- --------------
Balance at
December
31,1999......... $(960,000) $(48,734,222) $(20,401,000) $(36,675,266)
============ ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ----------- ------------
Cash flows from operating activities
Net loss.............................. $(1,302,051) $(9,711,139) $(37,630,560)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 14,442 118,014 739,646
Amortization of intangible assets... 109,273 425,016 319,923
Provision for doubtful accounts..... 217,786 528,412 3,955,938
Non-cash compensation expense....... -- -- 8,202,500
Amortization of deferred compensa-
tion............................... -- 495,500 2,717,500
Imputed interest on long term pay-
able............................... 74,950
Common stock options issued for con-
sulting
services........................... 10,518 18,750 --
Changes in assets and liabilities, net
of effects of business acquisition:
Accounts receivable................. (749,567) (2,800,175) (7,336,359)
Other current assets................ (62,846) (365,626) (808,269)
Other assets........................ 5,607 (181,907) (400,917)
Accounts payable.................... 510,650 1,484,365 3,327,817
Accrued and other current liabili-
ties............................... 333,212 226,380 4,859,726
Payroll related liabilities......... 60,323 303,198 610,382
Taxes payable....................... 165,001 149,902 1,685,219
----------- ----------- ------------
Net cash used in operating activi-
ties.............................. (687,652) (9,309,310) (19,682,504)
----------- ----------- ------------
Cash flows from investing activities
Purchase of restricted certificates of
deposit.............................. (100,000) -- (334,000)
Purchase of property and equipment.... (56,047) (473,717) (13,918,093)
Business acquisition, net of cash ac-
quired............................... (92,638) -- --
----------- ----------- ------------
Net cash used in investing activi-
ties.............................. (248,685) (473,717) (14,252,093)
----------- ----------- ------------
Cash flows from financing activities
Repayments of capital lease........... (3,931) (26,058) (61,828)
Proceeds from issuance of long term
debt................................. 6,883,960
Proceeds from exercise of common stock
options and warrants................. 8,786
Proceeds from issuance of mandatorily
redeemable common stock.............. 1,387,500
Proceeds from issuance of common
stock................................ 1,420,000 150,004 640,000
Repurchase treasury stock............. (200,000)
Proceeds from issuance of Series A and
B convertible preferred stock, net... -- 11,939,854 --
Proceeds from issuance of Series C
mandatorily redeemable convertible
preferred stock, net................. -- -- 27,795,875
----------- ----------- ------------
Net cash provided by financing ac-
tivities.......................... 1,416,069 12,063,800 36,454,293
----------- ----------- ------------
Net increase in cash and cash
equivalents....................... 479,732 2,280,773 2,519,696
Cash and cash equivalents, beginning of
period................................ 292,019 771,751 3,052,524
----------- ----------- ------------
Cash and cash equivalents, end of peri-
od.................................... $ 771,751 $ 3,052,524 $ 5,572,220
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and Nature of Business
Broadview Networks Holdings, Inc. (the "Company"), formerly Coaxicom, Inc.
(prior to the name change as of October 5, 1999), is a privately held
Delaware corporation originally incorporated in March 1996. The Company's
principal business consists of providing a complete line of local, long
distance, internet, and data services to customers within New York and
Massachusetts.
Effective September 30, 1997, the Company acquired Briar Joy Development
Corporation d/b/a SCC Telecommunications ("SCC"), a provider of commercial
and residential telecommunication services. On April 16, 1998, the name of
SCC was formally changed to Community Networks, Inc. ("CNI"). On October 5,
1999, the name of CNI was formally changed to Broadview Networks, Inc.
("BNI").
On November 25, 1997, the Company, together with three software engineers,
formed National CEJ, LLC ("CEJ") for the purpose of developing operating
software for the telecommunications industry. Concurrent with the formation
of CEJ, the Company obtained a 61% interest in CEJ. On January 29, 1998,
the Company issued 551,580 shares of its restricted common stock valued at
$951,000 to the three software engineers in exchange for their 39% interest
in CEJ and their agreement to continue to develop software for the Company
under two year employment agreements. On May 7, 1998 the name of CEJ was
formally changed to Open Support Systems LLC ("OSS").
2.Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, BNI and OSS. All significant
intercompany transactions have been eliminated in consolidation.
On June 29, 1998 the Company reorganized as a Delaware corporation, which
was effected in a manner so as to exchange each share of Coaxicom Inc., the
New York Corporation, for 290 shares of the Company. All share information
in the consolidated financial statements has been retroactively restated to
reflect the effect of this exchange as if it had occurred at the beginning
of the earliest period presented.
Revenue Recognition
The Company's revenue is derived from subscriber usage and fixed monthly
recurring fees. Revenue from subscriber usage is recognized when calls are
completed. Revenue from fixed monthly recurring fees is recognized when the
related services are performed. Unbilled revenue included in accounts
receivable represents revenue for earned services which will be billed in
the succeeding month and totaled $1,737,845 and $3,082,386 as of December
31, 1998 and 1999, respectively. Beginning August 1, 1999, the Company
began invoicing new customers one month in advance for recurring services
which resulted in deferred revenue of $188,107 at December 31, 1999.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. A significant
portion of cash balances are maintained with several high credit quality
financial institutions, which are members of the FDIC.
F-7
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Restricted Certificates of Deposit
At December 31, 1998 and 1999, the Company held bank certificates of deposit
which are restricted to cover letters of credit required as security by a
long distance carrier and the lease of premises housing a switch facility.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The
estimated useful life is three years for computer and office equipment, five
years for furniture and fixtures, and seven years for network equipment.
Leasehold improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the related lease term.
Capitalized software costs are amortized on a straight-line basis over the
estimated useful life, typically two years. Maintenance and repairs are
expensed as incurred.
Intangible Assets
Intangible assets consist of customer lists and non-compete agreements. The
intangible assets were amortized over a period of two years using the
straight-line method and were fully amortized during 1999.
Impairment of Long-lived Assets
Long-lived assets, including intangibles, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and carrying
value of the asset.
Income Taxes
The Company recognizes deferred taxes using the asset and liability method
of accounting for income taxes. Under the asset and liability method,
deferred income taxes are recognized for differences between the financial
reporting and tax bases of assets and liabilities at enacted statutory tax
rates in effect for the years in which the differences are expected to
reverse. The effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date. In addition,
valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under APB 25, generally no compensation expense is
recorded when the terms of the award are fixed and the exercise price of the
employee stock option equals or exceeds the fair value of the underlying
stock on the date of grant. The Company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with
SFAS 123, stock options granted to non-employees are recorded at fair value.
F-8
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Software Development Costs
On January 1, 1999, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 provides guidance for the accounting for computer
software developed or acquired for internal use including the requirement to
capitalize certain costs and amortization of these costs. Costs for
preliminary stage projects are expensed as incurred while application stage
projects are capitalized. The latter costs are typically internal payroll
costs of employees associated with the development of internal use computer
software. The Company commences amortization of the software on a straight-
line basis over the estimated useful life, typically two years, when it is
ready for intended use.
The Company expensed approximately $30,000, $1,435,000, and $2,084,000 of
software development costs for the years ended December 31, 1997, 1998 and
1999, respectively. During the year ended December 31, 1999, the Company
capitalized $667,212 of software development costs, and amortized $19,953 of
these costs which are presented in property and equipment.
Advertising Costs
Advertising costs are charged to expense the first time the advertising
takes place and totaled approximately $288,000, $1,495,000, and $1,001,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Segment Reporting
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 uses a management approach to report financial and
descriptive information about a Company's operating segments. Operating
segments are revenue-producing components of the enterprise for which
separate financial information is produced internally for the Company's
management. Under this definition, the Company operated, for all periods
presented, as a single segment.
Comprehensive Income
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income",
which establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. SFAS 130 was
effective for fiscal years beginning after December 15, 1997. Implementation
of this statement has not had an impact on the Company's financial
statements as the Company has no other comprehensive income to report.
F-9
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements
In June 1998, FASB issued SFAS 133, "Accounting for Derivatives and Hedging
Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS 133 is effective for all
fiscal quarters or fiscal years beginning after June 15, 2000, as amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133," issued in June
1999. The Company does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, cash flows or
financial position.
Net Loss Per Share
Basic net loss per common share is computed by dividing the net loss
applicable to common stockholders for the year by the weighted-average
number of common shares and mandatorily redeemable common shares outstanding
during the year. Diluted net loss per common share is computed by dividing
the net loss applicable to common stockholders for the year by the weighted-
average number of common and common stock equivalents, which include
unvested restricted common shares, common shares issuable upon the exercise
of stock options, warrants and upon conversion of the mandatorily redeemable
and convertible preferred shares outstanding during the year. Common stock
equivalents are excluded from the computation if their effect is
antidilutive.
At December 31, 1997, 1998, and 1999 523,875, 6,436,108 and 12,847,413
common stock equivalents, respectively, were excluded from basic and diluted
net loss per share calculation as their inclusion would have been
antidilutive. In addition, at December 31, 1999 13,241 incremental shares,
calculated under the reverse treasury stock method, related to the embedded
put option of the mandatorily redeemable common stock were excluded from the
computation of the diluted net loss per share as their inclusion would have
been antidilutive. The unaudited pro forma basic and diluted net loss per
share is computed by dividing the net loss by the sum of the weighted
average number of shares of common stock outstanding giving effect for the
one for one conversion into common stock of all 11,554,744 shares of the
Series A and Series B convertible preferred stock and Series C mandatorily
redeemable preferred stock, as if such conversions had occurred at the
beginning of the earliest period presented or issuance date if later.
As the calculation of the unaudited pro forma basic and diluted net loss per
common share includes the assumed conversion of all preferred stock that
will occur upon the consummation of an initial public offering, the
accretion to the redemption value related to the Series C preferred stock of
$11,092,492 has been excluded from the calculation of the net loss
applicable to common stockholders.
F-10
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the numerator and denominator used in the calculation
of basic and diluted and unaudited pro forma basic and diluted net loss
per common share is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Numerator:
Net loss.......................... $(1,302,051) $(9,711,139) $(37,630,560)
Accretion of mandatorily
redeemable preferred stock....... -- -- (11,092,492)
----------- ----------- ------------
Net loss applicable to common
stockholders..................... $(1,302,051) $(9,711,139) $(48,723,052)
=========== =========== ============
Denominator:
Weighted average shares of common
stock outstanding................ 5,391,317 6,510,871 7,137,999
Weighted average shares of
mandatorily redeemable common
stock............................ -- -- 100,632
----------- ----------- ------------
Weighted average common shares
used in computing basic and
diluted net loss per share....... 5,391,317 6,510,871 7,238,631
----------- ----------- ------------
Basic and diluted net loss per
common share..................... $ (0.24) $ (1.49) $ (6.73)
=========== =========== ============
Weighted average shares used in
computing basic and diluted net
loss per common share............ 7,238,631
Adjustment to reflect the assumed
conversion of all mandatorily
redeemable and convertible
preferred stock (unaudited)...... 9,625,531
------------
Weighted average shares used in
computing pro forma basic and
diluted net loss per common share
(unaudited)...................... 16,864,162
------------
Pro forma basic and diluted net
loss per common share
(unaudited)...................... $ (2.23)
============
</TABLE>
Pro Forma Stockholders' Equity (unaudited)
As described in Notes 16 and 17, upon completion of the Company's
qualified initial public offering, all of the mandatorily redeemable
preferred stock and convertible preferred stock outstanding as of the
closing date, will automatically be converted into an aggregate amount of
shares of common stock. In addition, the mandatory redemption feature of
the Series C and Series D preferred stock and the mandatorily redeemable
common stock will terminate upon completion of an initial public offering.
Unaudited pro forma shareholders' equity at December 31, 1999, as adjusted
for the conversion of the mandatorily redeemable convertible preferred
stock outstanding at December 31, 1999 and the termination of the
mandatorily redemption feature of the common shares, is presented in the
accompanying balance sheet.
F-11
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain prior year balances have been reclassified to conform to current
year presentation.
3.Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
----------- -------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest.................................. $ 4,221 $ 14,070 $ 143,421
Supplemental noncash investing and
financing activities:
Common stock issued to an officer in
consideration of a note receivable....... $1,600,000
Equipment acquired under long term credit
(net of imputed interest in the amount of
$315,333)................................ $1,652,438
Equipment acquired under capital lease.... $ 6,108 $126,933 $ 107,786
Acquisition of business (net of cash
acquired):
Fair value of assets acquired............ $ 1,586,557
Fair value of liabilities assumed........ (1,193,919)
Common stock issued...................... (300,000)
-----------
$ 92,638
===========
</TABLE>
4.Risks and Uncertainties
The Company has experienced significant net operating losses and negative
cash flow since its inception. To date, the Company has funded its
operations and the construction of its network with external financing
through various preferred stock, common stock and debt issuances. The
Company's continued network deployment will require continued substantial
capital expenditures. The Company's ability to fund these expenditures is
dependent upon the Company raising substantial financing. Failure to raise
sufficient capital could compel the Company to delay or modify some of its
plans or expenditures. However, management believes that the Company's
current cash resources and credit facility together with anticipated equity
financing and expected revenue growth will be sufficient to fund the
Company's operations for the next twelve months (See Note 18).
The Company is dependent upon certain carriers for the provision of
telecommunications services to its customers. The Company's two largest
carriers accounted for approximately 84%, 88% and 90% of the costs incurred
by the Company to provide service to customers for the years ended December
31, 1997, 1998 and 1999, respectively.
5.Acquisition
On September 30, 1997, the Company acquired all of the outstanding shares
of common stock of BNI and settled certain outstanding debts of BNI for
290,000 shares of common stock and $180,000 cash. The total cost of
acquisition, accounted for using the purchase method, approximated
$504,000. The excess acquisition costs over the fair value of acquired net
assets of approximately $655,000 was allocated to an intangible for the
value of BNI's customer lists. The operating results of BNI have been
included in the consolidated statement of operations from the date of
acquisition. Unaudited pro forma results of operations as if the
acquisition had
F-12
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
taken place at the beginning of 1997, would have been as follows: revenue
of $4,284,000, net loss of $1,630,000 and basic and diluted net loss per
share of $0.30.
Such pro forma amounts are not necessarily indicative of the actual
consolidated results of operations that would have been reported as if the
acquisition had been effective as of the beginning of 1997. In connection
with the BNI acquisition, the Company also granted two employees of BNI,
common stock options in respect of non-compete agreements signed by the
employees. The aggregate fair value of the options in excess of the
exercise price in the amount of $199,386 was presented as an intangible
asset and was amortized over the two-year term of the agreements.
6.Deferred Compensation
On January 29, 1998, the Company issued 551,580 shares of its restricted
common stock valued at $951,000 to certain employees in exchange for their
interest in OSS and their employment agreements to provide development
services for the Company for a period of two years. Under the restricted
common stock agreements, the Company has the right to buy back the unvested
portion of the restricted shares for nominal consideration upon voluntary
separation by the employee. The restricted common stock grants are being
recorded as deferred compensation and are being amortized as compensation
expense over the term of the employment agreements.
7.Property and Equipment
Property and equipment, at cost, consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Computer and office equipment........................ $ 691,915 $ 1,664,022
Furniture and fixtures............................... 72,936 916,358
Network equipment.................................... -- 7,886,379
Leasehold improvements............................... 27,192 182,562
Capitalized software costs........................... -- 667,212
Construction in progress--network equipment.......... -- 5,153,827
--------- -----------
792,043 16,470,360
Less: Accumulated depreciation and amortization...... (133,120) (872,766)
--------- -----------
$ 658,923 $15,597,594
========= ===========
</TABLE>
Included in network equipment and construction in progress are colocation
fees that represent one time fees paid to obtain central office space for
location of certain Company equipment. Colocation fees amounted to
$2,304,763 as of December 31, 1999 and are being amortized over seven
years. Included above is equipment under capital lease of $133,041 and
$240,827 as of December 31, 1998 and 1999, less accumulated depreciation
and amortization of $27,306 and $56,639, respectively.
F-13
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8.Intangible Assets
Intangible assets consist of the following at December 31 (see Note 5):
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Customer lists.......................................... $ 654,826 $654,826
Non-compete agreements.................................. 199,386 199,386
--------- --------
854,212 854,212
Less: Accumulated amortization.......................... (534,289) (854,212)
--------- --------
$ 319,923 $ --
========= ========
</TABLE>
9.Obligations under Capital and Operating Leases
The future minimum lease payments under capital leases at December 31, 1999
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000.............................................................. $ 81,380
2001.............................................................. 76,759
2002.............................................................. 58,640
2003.............................................................. 6,398
---------
Total minimum lease payments.................................... 223,177
Less: amounts representing interest............................... (36,766)
---------
$ 186,411
=========
</TABLE>
The Company rents office space and equipment under various operating
leases. The future minimum lease payments under operating leases at
December 31, 1999 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000............................................................ $ 1,369,137
2001............................................................ 1,672,507
2002............................................................ 1,542,691
2003............................................................ 1,557,832
2004............................................................ 1,394,528
Thereafter...................................................... 6,106,821
-----------
Total minimum lease payments.................................. $13,643,516
===========
</TABLE>
Total rent expenses under these operating leases for the years ended
December 31, 1997, 1998 and 1999 amounted to $54,230, $208,013 and
$767,804, respectively.
10.Long-Term Debt
In October 1999, the Company entered into a seven-year, $36 million credit
facility with a major financial institution. Advances under the credit
facility are available through September 30, 2001 and may be used to fund
the purchase of certain network-related equipment and certain costs related
to the network implementation. The credit facility provides the lender with
a first priority
F-14
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
collateralized interest in all assets funded under the credit facility.
Interest on the credit facility is capitalized from the date of each
funding until December 1, 2001. At this time the Company will begin making
stepped principal payments with accrued interest for four years. At
December 31, 1999, $6.9 million under the facility was outstanding with an
average interest rate of 11.7%. In connection with the issuance of the
debt, the Company paid $540,000 as commitment fee, which is being amortized
over the life of the loan.
Under the terms of the credit facility agreement, the Company is required
to comply with certain financial covenants, including minimum revenues,
minimum gross margins, fixed charged coverage ratio (as defined), and
minimum leverage ratio. In addition, the Company may not make any equity
payments, including dividends, to any person without prior written consent
of the lender. As of December 31, 1999, the Company has met all required
covenants.
The maturities of long-term debt for the five years after December 31, 1999
are as follows:
<TABLE>
<S> <C>
2000.............................................................. $ 64,277
2001.............................................................. 835,545
2002.............................................................. 1,607,596
2003.............................................................. 2,378,942
Thereafter........................................................ 1,997,600
----------
Total............................................................ $6,883,960
==========
</TABLE>
11.Long-Term Payable
Under a purchase agreement with a vendor, the Company pays a specified
portion of each invoice within normal trade terms. The balance of each
invoice is due and payable in 18 months from the invoice date. These
balances are non-interest bearing and composed at December 31, 1999 as
follows:
<TABLE>
<S> <C>
Principal amount.............................................. $ 1,967,771
Less--unamortized discount based on imputed interest rate of
11.7%........................................................ (240,383)
-----------
1,727,388
Less--current maturities...................................... (677,991)
-----------
$ 1,049,397
===========
</TABLE>
12.Commitments and Contingencies
The Company purchases long distance services under a contract agreement
with one of its carriers. Minimum purchase requirements under this
agreement are $300,000 per month through April 2001.
During the year ended December 31, 1999, the Company entered into
employment agreements with seven executives. These agreements provide for
base salaries and performance bonuses over periods ranging from one to two
years. These employment agreements also provide for severance compensation
for a period of up to one year after termination if the employment
agreement of the executive is terminated without cause. The aggregate
future minimum commitments at December 31, 1999 under these employment
agreements are approximately $1,650,000 for annual base salary, $825,000
for severance payment and annual bonus, contingent upon performance goals,
of up to an additional 60% of the annual base salary.
F-15
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13.Income Taxes
The components of the net deferred tax asset consist of the following at
December 31:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Accounts receivable............................... $ 129,983 $ 442,847
Intangible assets................................. 23,974 --
Deferred income................................... -- 102,000
Organization costs................................ 7,423 5,466
Conversion costs.................................. 12,916 58,843
Net operating loss carryforwards.................. 3,493,655 12,514,178
Other............................................. 7,028 21,898
----------- ------------
Total deferred tax assets........................ 3,674,979 13,145,232
----------- ------------
Accelerated depreciation.......................... (41,069) (283,384)
----------- ------------
Total deferred tax liabilities................... (41,069) (283,384)
----------- ------------
Net deferred tax asset........................... 3,633,910 12,861,848
Valuation allowance.............................. (3,633,910) (12,861,848)
----------- ------------
$ -- $ --
=========== ============
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
totaling approximately $36.8 million, which expire at various times through
2019. Under Section 382 of the Internal Revenue code of 1986, as amended,
utilization of prior net operating losses is limited after an ownership
change, as defined. As a result, a portion of the net operating loss
carryforward is subject to substantial limitation due to ownership changes.
As each entity files separate federal and state tax returns, the net
operating losses may be used to offset taxable income of each separate
company. The Company has recorded a valuation allowance against the entire
amount of net deferred tax assets since management believes that based upon
available evidence, it is more likely than not that these assets will not
be realized.
F-16
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14.Stock Options
In February 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan"). The 1997 Plan provides for up to 2,900,000 shares for grants,
either as incentive stock options or as nonqualified stock options, to
purchase shares of the Company's common stock and for other stock-based
awards to officers, directors and key employees responsible for the
direction and management of the Company and to non-employee consultants and
independent contractors. In September 1999, the board of directors and
stockholders of the Company approved an increase in the number of shares
available under the 1997 Plan to 4,100,000 shares. The options generally
expire five years from the date of 100% vesting. The following information
relates to options issued under the Plan.
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Shares Per Share
--------- ----------------
<S> <C> <C>
Outstanding January 1, 1997...................... --
Granted.......................................... 554,325 $0.92
Exercised........................................ --
Forfeited........................................ --
---------
Outstanding January 1, 1998...................... 554,325 0.92
Granted.......................................... 975,800 1.74
Exercised........................................ (116,000) 0.00
Forfeited........................................ (126,600) 1.72
---------
Outstanding January 1, 1999...................... 1,287,525 1.55
Granted.......................................... 2,481,740 4.49
Exercised........................................ (5,392) 1.54
Forfeited........................................ (125,670) 2.42
---------
Outstanding December 31, 1999.................... 3,638,203 $3.53
========= =====
Shares exercisable at December 31, 1998.......... 539,025 $1.28
========= =====
Shares exercisable at December 31, 1999.......... 833,573 $1.47
========= =====
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Exercise Outstanding Remaining
Price Options Contractual Life Exercisable
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.01 75,690 7.7 75,690
0.34 29,000 7.1 29,000
0.86 165,300 7.3 165,300
1.72 410,431 8.0 301,527
1.75 814,691 9.0 211,819
2.00 162,600 9.5 3,000
2.75 60,000 9.4 --
3.45 43,500 7.7 43,500
3.75 860,870 9.7 800
6.40 954,788 9.8 2,604
9.00 61,333 9.9 333
--------- -------
3,638,203 833,573
========= =======
</TABLE>
F-17
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of options granted to employees is estimated using the
minimum value method of the Black-Scholes option-pricing model, which
assumes no volatility. The values were obtained using assumptions, which
were arrived using information provided by management of the Company.
Changes in the information would affect the assumptions and the option
prices derived from the assumptions. The assumptions used for grants made
in 1997, 1998 and 1999 were as follows: risk free interest rate of
approximately 6%, 5% and 5% for 1997, 1998 and 1999, respectively, zero
dividend yield and an expected life of 5 years for 1997, 1998 and 1999.
The following table is a summary of the weighted average exercise price and
grant date fair value of options granted to employees during the years
ended December 31 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- ---------------
Exercise Fair Exercise Fair Exercise Fair
Price Value Price Value Price Value
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Exercise price less than fair
value of stock on date of
grant....................... $0.01 $1.04 $1.75 $1.24 $4.55 $10.24
Exercise price equal to fair
value of stock on date of
grant....................... 1.15 0.30 1.72 0.38 -- --
Exercise price greater than
fair value of stock on date
of grant.................... 3.45 -- -- -- -- --
</TABLE>
In general, the options vest 25% after one year and then in equal
installments every month for a period of 36 months. Upon a change of
control of the Company, the unvested portion of the options granted to
various executive officers will automatically become 100% vested.
Had compensation cost been determined based upon the fair value method of
SFAS 123, the Company's net loss on a pro forma basis would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss applicable to common
stockholders:
As reported....................... $(1,302,051) $(9,711,139) $(48,723,052)
Pro forma......................... $(1,430,484) $(9,796,664) $(52,680,749)
Net loss per share applicable to
common stockholders:
As reported--basic and diluted.... $ (0.24) $ (1.49) $ (6.73)
Pro forma--basic and diluted...... $ (0.27) $ (1.51) $ (7.28)
</TABLE>
During 1998, the Company granted stock options to employees to purchase
shares of common stock at $1.75 exercise price per share. In connection
with these issuances, the Company recorded $328,000 of deferred
compensation and recognized $20,000 and $82,000 in 1998 and 1999,
respectively, as compensation expense. The deferred compensation is being
amortized over the vesting period, which is generally four years.
During 1999, the Company granted stock options to employees to purchase
shares of common stock at exercise prices ranging from $1.75-$9.00 per
share. In connection with these issuances, the Company recorded $22,335,000
of deferred compensation and recognized $2,160,000 in 1999 as compensation
expense. The deferred compensation is being amortized over the vesting
period, which is generally four years.
F-18
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company determined the amount of deferred compensation as the
difference between the estimated fair market value of the options granted
and the exercise price on the date of grant.
During 1997, in connection with the acquisition of BNI, 191,690 fully
vested stock options having an aggregate estimated fair value of $199,386
were issued for two non-compete agreements. This amount was deferred and
amortized over the two year term of the related agreements. In 1997 and
1998, the Company granted consultants, for services rendered 48,772 and
87,000 stock options, respectively, at an exercise price of $1.724. These
options were fully vested at the grant date and were recorded based on the
fair value of the invoiced services received, at $10,518 and $18,750, for
the years ended December 31, 1997 and 1998, respectively.
15.Employee Savings and Retirement Plan
The Company has a 401(k) plan that allows eligible employees to contribute
up to 15% of their salary, subject to annual limits. Under the plan,
eligible employees may defer a portion of their pretax salaries but not
more than the statutory limit. The Company matches the employees'
contributions, limited to a maximum of 1.5% of participants' eligible
compensation. The Company contributed approximately $0, $3,981 and $34,461
to the plan during the years ended December 31, 1997, 1998, and 1999,
respectively.
16.Mandatorily Redeemable Securities
Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C")
On April 23, 1999, the Company issued 6,269,875 shares of Series C to
investors for $27,795,875, net of $204,125 issuance expense. This issue has
a stated liquidation preference of $4.46580 per share, plus all accrued and
unpaid dividends whether or not declared ("Series C Liquidation
Preference") and is senior in liquidation to the Series A, Series B, and
all common stock. Holders of the Series C have the right to convert their
shares into common stock at any time. The conversion ratio is 1:1, subject
to certain antidilution rights, as defined. Holders of Series C are
entitled to receive when, as and if, declared by the Company's board of
directors, cumulative preferential dividends at an annual rate of 8% of the
Series C Liquidation Preference. The Series C carries voting rights equal
to one vote per share, on an as converted basis. In addition, holders of
Series C, voting as a class, have veto rights on certain specific corporate
actions of the Company, as defined. At any time after April 23, 2005, the
Series C is redeemable at the option and written election of the holders of
at least 50% of the Series C within one year of such election at the
greater of (i) the fair market value of the Common Stock underlying the
Series C to be redeemed, or (ii) the aggregate Series C Liquidation
Preference of the Series C to be redeemed, as defined.
The Series C issue provides an option, exercisable through February 15,
2000, under which the Series C holders may acquire 5,300,892 shares of
Series D Mandatorily Redeemable Convertible Preferred Stock ("Series D")
for $5.28213 per share. The Company allocated a portion of the Series C
proceeds to the Series D option based upon its relative fair value at the
time of the Series C issuance. The fair value of the Series D option was
determined to be approximately $5.3 million using the Black-Scholes options
pricing model and was based on the following assumptions: risk free
interest rate of 6%; expected life of ten months; zero dividend yield; and
expected volatility of 75%.
F-19
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pursuant to the terms of the Series C agreement, the Company may cause the
outstanding shares of Series C to be automatically converted into common
stock at the Series C conversion price upon the consummation of an IPO in
which the gross proceeds to the Company are equal to or greater than $50.0
million and the price per share paid in the offering is greater than three
times the Series C conversion price of $4.4658 at December 31, 1999.
The carrying value of the Series C is being accreted to its redemption
value over the period from issuance through the earliest redemption date.
Accretion related to the Series C totaled $11,092,492 for the year ended
December 31, 1999.
Series D Mandatorily Redeemable Convertible Preferred Stock ("Series D")
The Series D issue will have a stated liquidation preference of $5.28213
per share, plus all accrued and unpaid dividends whether or not declared
("Series D Liquidation Preference") and is equal in seniority with the
Series C holders and is senior in liquidation to the Series A, Series B,
and all common stock. Holders of the Series D have the right to convert
their shares into common stock at any time. The conversion ratio is 1:1,
subject to certain antidilution rights, as defined. Holders of Series D are
entitled to receive when, as and if, declared by the Company's board of
directors, cumulative preferential dividends at an annual rate of 8% of the
Series D Liquidation Preference. The Series D carries voting rights equal
to one vote per share, on an as converted basis. In addition, holders of
Series D, voting as a class, have veto rights on certain specific corporate
actions of the Company, as defined. At any time after April 23, 2005, the
Series D is redeemable at the option and written election of the holders of
at least 50% of the Series D within one year of such election at the
greater of (i) the fair market value of the Common Stock underlying the
Series D to be redeemed, or (ii) the aggregate Series D Liquidation
Preference of the Series D to be redeemed, as defined. There were no Series
D issued or outstanding as of December 31, 1999 (See Note 18).
Pursuant to the terms of the Series D agreement, the Company may cause the
outstanding shares of Series D to be automatically converted into common
stock at the Series D conversion price upon the consummation of an IPO in
which the gross proceeds to the Company are equal to or greater than $50.0
million and the price per share paid in the offering is greater than three
times the Series D conversion price.
Mandatorily Redeemable Common Stock
On September 23, 1999, the Company sold 370,000 shares of common stock to
an executive officer of the Company for $1,387,500. In connection with this
transaction, the Company recorded compensation expense of $3,792,500
representing the difference between the estimated fair market value of the
common stock purchased and the amount paid. If the Company is not a public
Company after the executive's employment ends, after at least an initial
six month holding period, the executive may require the Company to purchase
the shares at their then fair market value as determined by an independent
appraiser.
17. Stockholders' Equity
Common Stock
On January 29, 1998, the Board of Directors amended the certificate of
incorporation to increase the authorized shares of Common Stock to an
aggregate of 14,500,000 shares with a par value
F-20
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of $.01 and authorized 5,800,000 shares of Convertible Preferred Stock with
a par value of $.01. In April 1999, the Company amended its certificate of
incorporation and increased its authorized capital to 32,000,000 shares of
Common Stock, $.01 par value, and 16,900,000 shares of Convertible
Preferred Stock, $.01 par value, of which 3,446,070 shares were designated
as Series A, 1,838,799 shares were designated as Series B and 6,269,875
shares were designated as Series C.
In June 1999, the Company repurchased 100,000 shares of common stock for
$2.00 per share from an executive officer of the Company.
On December 1, 1999, the Company sold 250,000 shares of common stock to an
executive officer for $1.6 million of which $640,000 was paid in January
2000, with the balance of $960,000 under a 10 year full recourse note
bearing interest at 6.47% per annum. On November 30, 1999, the Company sold
100,000 shares of common stock to another executive officer of the Company
for $640,000. In connection with these transactions, the Company recorded
$4,410,000 of compensation expense representing the difference between the
estimated fair market value of the common stock purchased and the amount
paid.
Series A Convertible Preferred Stock ("Series A")
On January 29, 1998, the Company issued 3,446,070 shares of Series A to
investors for $5,970,384, net of $30,531 issuance expense. The Series A is
convertible, at the option of the holder, into shares of common stock at
any time. The conversion ratio is 1:1, subject to certain anti-dilution
protection rights. The Series A automatically converts (i) upon the closing
of the Company's registration statement on a Form S-1 at a per share price
of $6.97 or at an aggregate public offering price of no less than $15.0
million, prior to underwriting, commissions and expenses; or (ii) at the
election of holders of more than 50% of the then outstanding Series A,
voting together as a single class, at the current conversion ratio. In the
event of liquidation, holders of Series A are entitled to receive, before
any amount shall be paid to holders of Common Stock, an amount per share
equal to $1.74, as adjusted for any stock dividends, combinations or
splits, plus all declared but unpaid dividends, if any. The Series A
carries voting rights equal to one vote per share, on an as converted
basis. Holders of the Series A are entitled to receive dividends when, as
and if, declared by the Company's board of directors. As of December 31,
1999, no dividends have been declared.
Series B Convertible Preferred Stock ("Series B")
On September 11, 1998, the Company issued 1,838,799 shares of Series B to
investors for $5,969,470, net of $30,531 issuance expense. The Series B is
convertible, at the option of the holder, into shares of Common Stock at
any time. The conversion ratio is 1:1, subject to certain anti-dilution
protection rights. The Series B automatically converts (i) upon the closing
of the Company's registration statement on a Form S-1 at a per share price
of $6.97 or at an aggregate public offering price of no less than $15.0
million, prior to underwriting, commissions and expenses; or (ii) at the
election of holders of more than 50% of the then outstanding Series B,
voting together as a single class, at the current conversion ratio. In the
event of liquidation, holders of Series B are entitled to receive, before
any amount shall be paid to holders of Common Stock, an amount per share
equal to $3.26, as adjusted for any stock dividends, combinations or
splits, plus all declared but unpaid dividends, if any. The Series B
F-21
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
carries voting rights equal to one vote per share, on an as converted
basis. Holders of the Series B are entitled to receive dividends when, as
and if, declared by the Company's board of directors. As of December 31,
1999, no dividends have been declared.
Warrants
The Company granted the investors of Series A, warrants to purchase a total
of 344,520 shares of Common Stock at any time after August 1, 1998 at a
price of $0.01 per share. The fair value of the warrants at the time of
grant was determined to be approximately $596,000, using the Black-Scholes
option pricing model, based on the following assumptions: risk free
interest rate of 5%; expected life of eight months; zero dividend yield;
and expected volatility of 75%. As of the effective date of the re-
incorporation of the Company in the state of Delaware, the warrants were
terminated.
In connection with the Series B issuance, the Company granted the investors
of Series B, warrants to purchase a total of 612,183 shares of common stock
at any time after the closing of the transaction at a price of $0.001 per
share. The fair value of the warrants at the time of grant was
approximately $1,065,000, using the Black-Scholes option pricing model,
based on the following assumptions: risk free interest rate of 5%; expected
life of seven months; zero dividend yield; and expected volatility of 75%.
As a result of the closing of the Series C on April 23, 1999, 459,139
warrants issued to the investors of Series B were exercised for 459,139
shares of common stock and the balance of the warrants was terminated.
18. Subsequent Events
On February 2, 2000, the Company amended its certificate of incorporation
and increased its authorized capital to 36,000,000 shares of common stock,
$0.01 par value, and 17,600,000 shares of convertible preferred shares,
$0.01 par value.
In February 2000, the Company amended the Series D agreement such that the
purchase price per share and the number of shares to be purchased upon the
exercise of the option were changed to $4.66126 and 6,006,959 shares,
respectively. Concurrent with the amendment, the Company issued 6,006,959
shares of Series D to investors for $27,950,000, net of $50,000 issuance
expense. The Series D issue has a new stated liquidation preference of
$4.66126 per share, plus all accrued and unpaid dividends whether or not
paid. All other terms of the original Series D agreement remained
unchanged. The conversion ratio of 1:1 represents a discount from the
market value of the common stock at the time of issuance. Accordingly, the
discount amount is considered incremental yield ("the beneficial conversion
feature"), to the preferred stockholders and has been accounted for as an
embedded dividend to preferred stockholders. Based on the conversion terms
of the Series D, an embedded dividend of approximately $32.3 million will
be added to the net loss in the calculation of net loss applicable to
common stockholders in the first quarter of 2000.
In connection with the Series D issuance, 214,534 shares of Series D were
purchased by an executive officer of the Company for approximately
$1,000,000. In connection with this transaction, the Company will record
compensation expense of approximately $3,075,000 in the first quarter of
2000, representing the difference between the estimated fair market value
of the Series D purchased and the amount paid.
During January 2000, the Company granted 270,900 stock options to employees
under the 1997 Plan to purchase shares of common stock at an exercise price
of $9.00 per share. In connection with this issuance, the Company will
record $2,709,000 of deferred compensation in 2000.
F-22
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On February 3, 2000, the board of directors approved a new stock option
plan (the "2000 Plan") that provides for up to 5,200,000 shares of common
stock for grant, either as incentive stock options or as nonqualified stock
options, to purchase shares of the Company's common stock and for other
stock-based awards to officers, directors and key employees responsible for
the direction and management of the Company and to non-employee consultants
and independent contractors. During February and March 2000, the Company
granted 2,339,321 options to employees and directors to purchase shares of
common stock at exercise prices ranging from $9.00 to $18.00 per share.
In connection with these awards, the Company will record approximately
$18,511,000 of deferred compensation which will be amortized over the
vesting period, which is generally four years. In addition, the board of
directors approved an Employee Stock Purchase plan to purchase up to
300,000 shares of common stock.
F-23
<PAGE>
[INSIDE BACK COVER]
[Maps of our existing and planned networks]
<PAGE>
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- -------------------------------------------------------------------------------
No dealer, sales person or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. This
information contained in this prospectus is current only as of its date.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 15
Corporate Information.................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 25
Management............................................................... 48
Certain Transactions..................................................... 57
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 74
Experts.................................................................. 74
Where You Can Find More Information about Broadview Networks............. 74
Index to Financial Statements............................................ F-1
</TABLE>
------------
Through and including [ ] , 2000, (the 25th day after the date of this
prospectus) all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,000,000 Shares
----------------
Broadview Networks Holdings, Inc.
----------------
Common Stock
[LOGO BROADVIEW NETWORKS]
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Expenses in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions, are
estimated as follows:
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 36,000
Printing and engraving expenses............................... $ 500,000
Legal fees and expenses....................................... $ 800,000
Accountants' fees and expenses................................ $ 550,000
NASD filing fee............................................... $ 13,000
Nasdaq listing fee............................................ $ 95,000
Blue Sky fees and expenses.................................... $ 10,000
Transfer Agent's fees and expenses............................ $ 3,000
Miscellaneous costs........................................... $ 193,000
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Total....................................................... $2,200,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
The Registrant's Restated certificate of incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
The Registrant's bylaws provide for the indemnification of officers,
directors and third parties acting on behalf of the Registrant if such person
acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors, in addition to indemnification provided for in the Registrant's
bylaws, and intends to enter into indemnification agreements with any new
directors in the future.
Item 15. Recent Sales of Unregistered Securities.
Since February 1, 1997, the Registrant has issued and sold the following
unregistered securities:
(1) On June 30, 1998, Coaxicom, Inc. a New York corporation and a
predecessor of the Registrant, reincorporated in Delaware by merging with
the Registrant, then a newly formed Delaware corporation. As a result of
the merger, each outstanding common share of Coaxicom, Inc. was converted
into the right to receive 290 shares of the common stock of the
Registrant. Shares of preferred stock and outstanding options to acquire
common stock of Coaxicom, Inc. were similarly adjusted. Numbers of shares
in the paragraphs below are reported to give effect to this adjustments.
(2) On April 21, 1997, the Registrant issued 1,160,000 shares of
common stock to various private investors for $1.0 million in cash.
II-1
<PAGE>
(3) On September 30, 1997, the Registrant issued 290,000 shares of
common stock valued at $300,000 to the stockholders of Briar Joy
Development Corporation, now known as Broadview Networks, Inc., in
exchange for the outstanding equity securities and certain indebtedness of
Briar Joy Development Corporation.
(4) In December 1997, the Registrant issued 252,300 shares of common
stock to various private investors for approximately $435,000 in cash.
(5) On January 29, 1998, in a transaction valued at $951,000, the
Registrant issued 551,580 shares of common stock to the members of
National CEJ, LLC, now known as Open Support Systems LLC, in exchange for
membership interests in National CEJ, LLC.
(6) On January 29, 1998, the Registrant issued 3,446,070 shares of
Series A convertible preferred stock and warrants to purchase 344,520
shares of common stock at an exercise price of $0.01 per share to
Communications Ventures II, L.P., Communications Ventures Affiliates
Fund II, L.P., New Enterprise Associates VII, L.P., NEA Presidents Fund,
NEA Ventures 1998, L.P. WPG Enterprise Fund III, LLC, Weiss, Peck & Greer
Venture Associates IV, LLC, Weiss, Peck & Greer Venture Associates IV
Cayman, L.P. and WPG Information Sciences Entrepreneur Fund L.P. for $6.0
million in cash. The warrants expired, unexercised, on June 30, 1998.
(7) In January, 1998, the Registrant issued 87,000 shares of common
stock to various private investors for approximately $150,000 in cash.
(8) On June 28, 1998, the Registrant issued 116,000 shares of common
stock to Vern Kennedy, Terrence Anderson, Tracy Korman, Scott Matukas,
Colm Kelly, Eric Neikrug, Drury Phebus, John Crowley, Kevin Mattern,
Philip Smith, Barry Korman and Karen Korman for approximately $200,000 in
cash.
(9) On September 9, 1998, the Registrant issued 1,838,799 shares of
Series B convertible preferred stock with warrants to purchase 612,183
shares of common stock at an exercise price of $0.01 per share to
Communications Ventures II, L.P., Communications Ventures Affiliates Fund
II, L.P., New Enterprise Associates VII, L.P., NEA Presidents Fund, WPG
Enterprise Fund III, LLC, Weiss Peck & Greer Venture Associates IV, LLC,
Weiss Peck & Greer Venture Associates IV Cayman, L.P. and WPG Information
Sciences Entrepreneur Fund, L.P. for $6.0 million in cash.
(10) On April 23, 1999, the Registrant issued 459,139 shares of common
stock to Communications Ventures II, L.P., Communications Ventures
Affiliates Fund II, L.P., New Enterprise Associates VII, L.P., NEA
Presidents Fund, WPG Enterprise Fund III, LLC, Weiss Peck & Greer Venture
Associates IV, LLC, Weiss Peck & Greer Venture Associates IV Cayman, L.P.
and WPG Information Sciences Entrepreneur Fund, L.P. for $4,591 in cash
following the exercise of warrants granted on September 9, 1998.
(11) On April 23, 1999, the Registrant issued 6,269,875 shares of
Series C convertible preferred stock to Baker Communications Fund, L.P.,
Communications Ventures II, L.P., Communications Ventures Affiliates Fund
II, L.P., New Enterprise Associates VII, L.P., WPG Enterprise Fund III,
LLC, Weiss, Peck & Greer Venture Associates IV Cayman, L.P. and WPG
Information Sciences Entrepreneur Fund L.P. for $28.0 million in cash.
(12) On September 23, 1999, the Registrant issued 370,000 shares of
common stock to Joel D. Gross at a price of $3.75 per share, or $1.4
million, and 830,000 options under the 1997 Stock Option Plan with an
exercise price of $3.75 per share.
(13) On November 30, 1999, the Registrant issued 100,000 shares of
common stock to Kenneth A. Shulman at a price of $6.40 per share, or
$640,000, and 250,000 options under the 1997 Stock Option Plan with an
exercise price of $6.40 per share.
II-2
<PAGE>
(14) On December 1, 1999, the Registrant issued 250,000 shares of
common stock to George F. Holland at a price of $6.40 per share, or $1.6
million, and 300,000 options under the 1997 Stock Option Plan with an
exercise price of $6.40 per share.
(15) In February 2000, the Registrant issued 6,006,959 shares of
Series D convertible preferred stock to Baker Communications Fund, L.P.,
Communications Ventures II, L.P., Communications Ventures Affiliates Fund
II, L.P., New Enterprise Associates VII, L.P., WPG Enterprise Fund III,
LLC, Weiss, Peck & Greer Venture Associates IV Cayman, L.P. and WPG
Information Sciences Entrepreneur Fund L.P., Joel Gross and The State
Treasurer of the State of Michigan, Custodian of the Michigan Public
School Employees' Retirement System, State Employees' Retirement System
and Michigan State Police Retirement System for $28.0 million.
(16) In addition to the option issuances referred to in paragraphs
(12), (13) and (14) above, since January 1, 1997, the Registrant has
issued 2,902,765 options to purchase shares of common stock under the 1997
Stock Option Plan. The options were issued at the following times and with
the following exercise prices:
. In January, 1997, 29,000 options with an exercise price of $0.3448 per
share
. From January, 1997 to June, 1997, 165,300 options with an exercise
price of $0.8621 per share
. In September, 1997, 192,324 options with an exercise price of $0.0001
per share
. In September 1997, 43,500 options with an exercise price of $3.4483
per share
. From September 1997 to June 1998, 526,431 options with an exercise
price of $1.7241 per share
. From June 1998 to May 1999, 901,519 options with an exercise price of
$1.75 per share
. From June 1999 to August 1999, 179,900 options with an exercise price
of $2.00 per share
. In May 1999, 60,000 options with an exercise price of $2.75 per share
. From August 1999 to September 1999, 895,370 options with an exercise
price of $3.75 per share
. From October 1999 to December 1999, 957,188 options with an exercise
price of $6.40 per share
. From December 1999 to January 2000, 332,233 options with an exercise
price of $9.00 per share
(17) In February 2000, under its 2000 Long Term Incentive Plan, the
Registrant issued to five of its executive officers options to purchase an
aggregate of 980,000 shares of common stock at an exercise price of $9.00
per share.
(18) In addition to the option issuances referred to in paragraph (17)
above, the Registrant has issued options to purchase an aggregate of
1,359,321 shares of common stock under the 2000 Long Term Incentive Plan.
The options were issued at the following times and with the following
exercise prices:
. In February 2000, 797,721 options with an exercise price of $9.00 per
share
. In February 2000, 86,200 options with an exercise price of $16.00 per
share
. In March 2000, 475,400 options with an exercise price of $18.00 per
share
II-3
<PAGE>
(19) Since February 1, 1997, the Registrant has issued 121,392 shares
of common stock following the exercise of options granted to employees, at
an average exercise price of $0.08 per share.
The issuances of options and sales of common stock upon exercise thereof
described in paragraphs (16), (18) and (19) above were exempt from registration
under the Securities Act in reliance on Rule 701 promulgated thereunder. All
option grants and sales of common stock described in these paragraphs were
effected pursuant to compensatory benefit plans and contracts relating to
compensation.
The sales of securities described in paragraphs (2) through (15) and (17)
were exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act. The recipients of securities in each transaction
were accredited or sophisticated investors and represented their intention to
acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof. In each case, legends were affixed
to share certificates and other instruments issued prohibiting transfer without
registration under the Securities Act or the availability of an exemption from
registration. All recipients either received adequate information about the
Company or had access, through employment relationships or otherwise, to such
information.
The issuance of the securities of the Registrant in the reincorporation
transaction described in paragraph (1) above was exempt from registration under
the Securities Act in reliance on Section 3(a)(9) thereof. No material changes
were made to the Registrant's capital structure or to the rights of the
stockholders other than the reincorporation of the Registrant in Delaware. No
consideration was paid to the Registrant or to any stockholder in connection
with the transaction.
Item 16. Exhibits and Financial Statement Schedule
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
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<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of Broadview
Networks
3.2 Form of Amended and Restated Bylaws of Broadview Networks
4.1 Specimen common stock certificate*
5.1 Form of Opinion of Mayer, Brown & Platt as to legality of the
securities being issued*
10.1 Lease, dated May 27, 1998 between Broadview Networks Holdings, Inc.
(formerly known as Coaxicom, Inc.) and 45-18 Court Square, Suite 403,
Long Island City, New York+
10.2 Lease, dated October 20, 1998 between Broadview Networks Holdings,
Inc. (formerly known as Coaxicom, Inc.) and 45-18 Court Square, LLC,
for property located at 45-18 Court Square, Suite 400, Long Island
City, New York.+
10.3 Lease, dated April 28, 1999 between Broadview Networks Holdings, Inc.
(formerly known as Coaxicom, Inc.) and 45-18 Court Square, LLC, for
property located at 45-18 Court Square, Suite 300, Long Island City,
New York.+
10.4 Lease, dated March 27, 1997 between Broadview Networks Holdings, Inc.
(formerly known as Coaxicom, Inc.) and 45-18 Court Square, LLC, for
property located at 45-18 Court Square, Suite 502, Long Island City,
New York.+
10.5 Lease, dated March 19, 1999 between Broadview Networks Holdings, Inc.
(formerly known as Community Networks, Inc.) and Standard Motor
Products, Inc. for property located at 37-18 Northern Boulevard, Long
Island City, New York.+
10.6 Lease, dated December 30, 1999 between Broadview Networks, Inc. and 59
Maiden Lane Associates, LLC, for property located at 59 Maiden Lane,
27th Floor, New York, New York.+
10.7 Lease, dated January 9, 1997 between Broadview Networks, Inc.
(formerly known as Community Networks, Inc.) and Briar Joy Development
Corp., for property located at 205-213 South Salina Street, 2nd Floor,
Syracuse, New York.+
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.8 Lease dated June 16, 1999 between Broadview Networks, Inc. (formerly
known as Community Networks, Inc.) and 224 Harrison Associates, LLC,
for property located at 224 Harrison Street, 5th floor, Syracuse, New
York+
10.9 Lease, dated June 16, 1999 between Broadview Networks, Inc. (formerly
known as Community Networks, Inc.) and 224 Harrison Associates, LLC,
for property located at 224 Harrison Street, 4th Floor, Syracuse, New
York+
10.10 Lease, dated November 25, 1998 between Broadview Networks, Inc.
(formerly known as Community Networks, Inc.) and Starbucks Coffee
Company, for property located at 2 Robins Lane, 2nd Floor, Jericho,
New York+
10.11 Lease, dated September 25, 1998 between Broadview Networks, Inc.
(formerly known as Community Networks, Inc.) and Galesi Management,
for property located at 100 State Street, Suite 140, Albany, New York+
10.12 Lease, dated October 22, 1998 between Broadview Networks Holdings,
Inc. (formerly known as Coaxicom, Inc.) and Main Place Liberty Group,
for property located at 416-426 Main Street, Suite 500, Buffalo, New
York+
10.13 Lease, dated September 23, 1999 between Broadview Networks, Inc.
(formerly known as Community Networks Inc.) and Hood Business Park,
LLC, for property located at Hood Business Park, 500 Rutherford
Avenue, 2nd Floor, Charlestown, Massachusetts+
10.14 Lease, dated January 31, 2000 between Broadview Networks, Inc. and 400
Horsham Road Associates, L.P., for 26,000 sq. ft. property located at
400 Horsham Road, Horsham, Pennsylvania+
10.15 Lease, dated January 31, 2000 between Broadview Networks, Inc. and 400
Horsham Road Associates, L.P., for 10,000 sq. ft. property located at
400 Horsham Road, Horsham, Pennsylvania+
10.16 Lease, dated July 15, 1998 between Open Support Systems, LLC and
Robert S. Sloat, for property located at 21 Charles Street, 4th Floor,
Westport, Connecticut+
10.17 Securities Purchase Agreement, dated as of April 23, 1999, among
Broadway Networks Holdings, Inc., Baker Communications Fund,
ComVentures, New Enterprise Associates, and Weiss, Peck & Greer
Venture Partners+
10.18 Amendment No. 1, dated February 2, 2000, to Securities Purchase
Agreement dated as of April 23, 1999, among Broadview Networks
Holdings, Inc., Baker Communications Fund, ComVentures, New Enterprise
Associates, Weiss, Peck & Greer Venture Partners and Joel Gross+
10.19 Amendment No. 2, dated February 4, 2000, to Securities Purchase
Agreement dated as of April 23, 1999, among Broadview Networks
Holdings, Inc., Baker Communications Fund, ComVentures, New Enterprise
Associates, Weiss, Peck & Greer Venture Partners, Joel Gross and The
State Treasurer of the State of Michigan, as Custodian of the Michigan
Public School Employees' Retirement System, State Employees'
Retirement System and Michigan State Police Retirement System+
10.20 Shareholders' Agreement, dated as of April 23, 1999, among Broadview
Networks Holdings, Inc., Baker Communications Fund, Communications
Ventures, New Enterprise Associates, Weiss, Peck & Greer Venture
Partners and the founders of Broadview Networks+
10.21 Amendment No. 1, dated February 2, 2000, to Shareholders' Agreement
dated April 23, 1999, among Broadview Networks Holdings, Inc., Baker
Communications Fund, ComVentures, New Enterprise Associates, Weiss,
Peck & Greer Venture Partners, the founders of Broadview Networks and
Joel Gross+
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.22 Amendment No. 2, dated February 4, 2000, to Shareholders' Agreement
dated April 23, 1999, among Broadview Networks Holdings, Inc., Baker
Communications Fund, ComVentures, New Enterprise Associates, Weiss,
Peck & Greer Venture Partners, the founders of Broadview Networks,
Joel Gross and The State Treasurer of the State of Michigan, as
Custodian of the Michigan Public School Employees' Retirement System,
State Employees' Retirement System and Michigan State Police
Retirement System+
10.23 Amendment No. 3, dated February 7, 2000, to Shareholders' Agreement
dated April 23, 1999, among Broadview Networks Holdings, Inc., Baker
Communications Fund, ComVentures, New Enterprise Associates, Weiss,
Peck & Greer Venture Partners, the founders of Broadview Networks,
Joel Gross and The State Treasurer of the State of Michigan, as
Custodian of the Michigan Public School Employees' Retirement System,
State Employees' Retirement System and Michigan State Police
Retirement System+
10.24 Interconnection Agreement, dated as of September 4, 1998, between
Community Networks of Massachusetts and New England Telephone and
Telegraph Company (d/b/a Bell Atlantic--Massachusetts)
10.25 Interconnection Agreement, dated as of December 18, 1998, between
Broadview Networks, Inc. formerly known as Community Networks, Inc.
and New York Telephone Company (d/b/a Bell Atlantic--New York)
10.26 Loan and Security Agreement, dated as of October 22, 1999, by and
among Broadview Networks Holdings, Inc., each of its subsidiaries and
NTFC Capital Corporation+
10.27 Waiver Agreement No. 1 dated December 31, 1999 to the Loan and
Security Agreement dated October 22, 1999 by and among Broadview
Networks Holdings, Inc., each of its subsidiaries and NTFC Capital
Corporation+
10.28 Master Purchase Agreement, dated March 30, 1999, between Broadview
Networks, Inc. and Northern Telecommunication, Inc., as amended+
10.29 Wholesale Service Agreement, dated April 8, 1996, between Broadview
Networks, Inc. and Frontier Communications of the West, Inc., as
amended+
10.30 Form of Employment Agreement between Broadview Networks Holdings, Inc.
and each of Vern M. Kennedy, Eric G. Roden, Colm D. Kelly, George F.
Holland, Terrence J. Anderson and Tracy W. Korman+
10.31 Employment Agreement, dated as of October 1, 1999, between Joel D.
Gross and Broadview Networks Holdings, Inc.+
10.32 Employment Agreement, dated as of December 14, 1999 between Kenneth A.
Shulman and Broadview Networks Holdings, Inc.+
10.33 Broadview Networks 1997 Stock Option Plan*
10.34 Broadview Networks 2000 Long Term Incentive Plan*
10.35 Broadview Networks 2000 Employee Stock Purchase Plan*
21.1 Subsidiaries of Broadview Networks Holdings, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Mayer, Brown & Platt (included in Exhibit 5.1)*
24.1 Power of Attorney+
27.1 Financial Data Schedule
(b) Financial Statement Schedule
99.1 Report of Independent Accountants on Financial Statement Schedule--
Valuation and qualifying accounts
99.2 Valuation and qualifying accounts
</TABLE>
- --------
*To be filed by amendment
+Previously filed
II-6
<PAGE>
Item 17. Undertakings
Broadview Networks hereby undertakes to provide the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
Broadview Networks has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Broadview Networks of expenses incurred or paid by a director, officer or
controlling person of Broadview Networks 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,
Broadview Networks will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933, and will be governed by the
final adjudication of such issue.
Broadview Networks undertakes that: (1) for purposes of determining any
liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by Broadview
Networks 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, and (2) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON THE 21st DAY OF MARCH, 2000.
BROADVIEW NETWORKS HOLDINGS, INC.
By: /s/ Vern M. Kennedy
-----------------------------------
Vern M. Kennedy
Chief Executive Officer
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Vern M. Kennedy President, Chief Executive March 21, 2000
___________________________________________ Officer (Principal
Vern M. Kennedy Executive Officer) and
Chairman of the Board of
Directors
/s/ Joel D. Gross Chief Financial Officer March 21, 2000
___________________________________________ (Principal Financial
Joel D. Gross Officer and Principal
Accounting Officer)
* Executive Vice President-- March 21, 2000
___________________________________________ Finance
Terrence J. Anderson
* Executive Vice President-- March 21, 2000
___________________________________________ Customer Relationship
Tracy W. Korman Management
* Executive Vice President-- March 21, 2000
___________________________________________ Sales and Marketing
George F. Holland
* Chief Technology Officer March 21, 2000
___________________________________________
Kenneth A. Shulman
* Chief Operating Officer March 21, 2000
___________________________________________
Eric G. Roden
* Chief Information Officer March 21, 2000
___________________________________________
Colm D. Kelly
* Director March 21, 2000
___________________________________________
Heidi B. Heiden
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director March 21, 2000
___________________________________________
Stuart A. Mencher
* Director March 21, 2000
___________________________________________
Edward W. Scott
* Director March 21, 2000
___________________________________________
Roland A. Van der Meer
</TABLE>
*By:
/s/ Vern M. Kennedy
- -------------------------------------
Vern M. Kennedy
Attorney-In-Fact
II-9
<PAGE>
<TABLE> EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of Broadview
Networks
3.2 Form of Amended and Restated Bylaws of Broadview Networks
4.1 Specimen common stock certificate*
5.1 Form of Opinion of Mayer, Brown & Platt as to legality of the
securities being issued*
10.1 Lease, dated May 27, 1998 between Broadview Networks Holdings, Inc.
(formerly known as Coaxicom, Inc.) and 45-18 Court Square, Suite 403,
Long Island City, New York+
10.2 Lease, dated October 20, 1998 between Broadview Networks Holdings,
Inc. (formerly known as Coaxicom, Inc.) and 45-18 Court Square, LLC,
for property located at 45-18 Court Square, Suite 400, Long Island
City, New York.+
10.3 Lease, dated April 28, 1999 between Broadview Networks Holdings, Inc.
(formerly known as Coaxicom, Inc.) and 45-18 Court Square, LLC, for
property located at 45-18 Court Square, Suite 300, Long Island City,
New York.+
10.4 Lease, dated March 27, 1997 between Broadview Networks Holdings, Inc.
(formerly known as Coaxicom, Inc.) and 45-18 Court Square, LLC, for
property located at 45-18 Court Square, Suite 502, Long Island City,
New York.+
10.5 Lease, dated March 19, 1999 between Broadview Networks Holdings, Inc.
(formerly known as Community Networks, Inc.) and Standard Motor
Products, Inc. for property located at 37-18 Northern Boulevard, Long
Island City, New York.+
10.6 Lease, dated December 30, 1999 between Broadview Networks, Inc. and 59
Maiden Lane Associates, LLC, for property located at 59 Maiden Lane,
27th Floor, New York, New York.+
10.7 Lease, dated January 9, 1997 between Broadview Networks, Inc.
(formerly known as Community Networks, Inc.) and Briar Joy Development
Corp., for property located at 205-213 South Salina Street, 2nd Floor,
Syracuse, New York.+
10.8 Lease dated June 16, 1999 between Broadview Networks, Inc. (formerly
known as Community Networks, Inc.) and 224 Harrison Associates, LLC,
for property located at 224 Harrison Street, 5th floor, Syracuse, New
York+
10.9 Lease, dated June 16, 1999 between Broadview Networks, Inc. (formerly
known as Community Networks, Inc.) and 224 Harrison Associates, LLC,
for property located at 224 Harrison Street, 4th Floor, Syracuse, New
York+
10.10 Lease, dated November 25, 1998 between Broadview Networks, Inc.
(formerly known as Community Networks, Inc.) and Starbucks Coffee
Company, for property located at 2 Robins Lane, 2nd Floor, Jericho,
New York+
10.11 Lease, dated September 25, 1998 between Broadview Networks, Inc.
(formerly known as Community Networks, Inc.) and Galesi Management,
for property located at 100 State Street, Suite 140, Albany, New York+
10.12 Lease, dated October 22, 1998 between Broadview Networks Holdings,
Inc. (formerly known as Coaxicom, Inc.) and Main Place Liberty Group,
for property located at 416-426 Main Street, Suite 500, Buffalo, New
York+
10.13 Lease, dated September 23, 1999 between Broadview Networks, Inc.
(formerly known as Community Networks Inc.) and Hood Business Park,
LLC, for property located at Hood Business Park, 500 Rutherford
Avenue, 2nd Floor, Charlestown, Massachusetts+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.14 Lease, dated January 31, 2000 between Broadview Networks, Inc. and 400
Horsham Road Associates, L.P., for 26,000 sq. ft. property located at
400 Horsham Road, Horsham, Pennsylvania+
10.15 Lease, dated January 31, 2000 between Broadview Networks, Inc. and 400
Horsham Road Associates, L.P., for 10,000 sq. ft. property located at
400 Horsham Road, Horsham, Pennsylvania+
10.16 Lease, dated July 15, 1998 between Open Support Systems, LLC and
Robert S. Sloat, for property located at 21 Charles Street, 4th Floor,
Westport, Connecticut+
10.17 Securities Purchase Agreement, dated as of April 23, 1999, among
Broadway Networks Holdings, Inc., Baker Communications Fund,
ComVentures, New Enterprise Associates, and Weiss, Peck & Greer
Venture Partners+
10.18 Amendment No. 1, dated February 2, 2000, to Securities Purchase
Agreement dated as of April 23, 1999, among Broadview Networks
Holdings, Inc., Baker Communications Fund, ComVentures, New Enterprise
Associates, Weiss, Peck & Greer Venture Partners and Joel Gross+
10.19 Amendment No. 2, dated February 4, 2000, to Securities Purchase
Agreement dated as of April 23, 1999, among Broadview Networks
Holdings, Inc., Baker Communications Fund, ComVentures, New Enterprise
Associates, Weiss, Peck & Greer Venture Partners, Joel Gross and The
State Treasurer of the State of Michigan, as Custodian of the Michigan
Public School Employees' Retirement System, State Employees'
Retirement System and Michigan State Police Retirement System+
10.20 Shareholders' Agreement, dated as of April 23, 1999, among Broadview
Networks Holdings, Inc., Baker Communications Fund, Communications
Ventures, New Enterprise Associates, Weiss, Peck & Greer Venture
Partners and the founders of Broadview Networks+
10.21 Amendment No. 1, dated February 2, 2000, to Shareholders' Agreement
dated April 23, 1999, among Broadview Networks Holdings, Inc., Baker
Communications Fund, ComVentures, New Enterprise Associates, Weiss,
Peck & Greer Venture Partners, the founders of Broadview Networks and
Joel Gross+
10.22 Amendment No. 2, dated February 4, 2000, to Shareholders' Agreement
dated April 23, 1999, among Broadview Networks Holdings, Inc., Baker
Communications Fund, ComVentures, New Enterprise Associates, Weiss,
Peck & Greer Venture Partners, the founders of Broadview Networks,
Joel Gross and The State Treasurer of the State of Michigan, as
Custodian of the Michigan Public School Employees' Retirement System,
State Employees' Retirement System and Michigan State Police
Retirement System+
10.23 Amendment No. 3, dated February 7, 2000, to Shareholders' Agreement
dated April 23, 1999, among Broadview Networks Holdings, Inc., Baker
Communications Fund, ComVentures, New Enterprise Associates, Weiss,
Peck & Greer Venture Partners, the founders of Broadview Networks,
Joel Gross and The State Treasurer of the State of Michigan, as
Custodian of the Michigan Public School Employees' Retirement System,
State Employees' Retirement System and Michigan State Police
Retirement System+
10.24 Interconnection Agreement, dated as of September 4, 1998, between
Community Networks of Massachusetts and New England Telephone and
Telegraph Company (d/b/a Bell Atlantic--Massachusetts)
10.25 Interconnection Agreement, dated as of December 18, 1998, between
Broadview Networks, Inc. formerly known as Community Networks, Inc.
and New York Telephone Company (d/b/a Bell Atlantic--New York)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.26 Loan and Security Agreement, dated as of October 22, 1999, by and
among Broadview Networks Holdings, Inc., each of its subsidiaries and
NTFC Capital Corporation+
10.27 Waiver Agreement No. 1 dated December 31, 1999 to the Loan and
Security Agreement dated October 22, 1999 by and among Broadview
Networks Holdings, Inc., each of its subsidiaries and NTFC Capital
Corporation+
10.28 Master Purchase Agreement, dated March 30, 1999, between Broadview
Networks, Inc. and Northern Telecommunication, Inc., as amended+
10.29 Wholesale Service Agreement, dated April 8, 1996, between Broadview
Networks, Inc. and Frontier Communications of the West, Inc., as
amended+
10.30 Form of Employment Agreement between Broadview Networks Holdings, Inc.
and each of Vern M. Kennedy, Eric G. Roden, Colm D. Kelly, George F.
Holland, Terrence J. Anderson and Tracy W. Korman+
10.31 Employment Agreement, dated as of October 1, 1999, between Joel D.
Gross and Broadview Networks Holdings, Inc.+
10.32 Employment Agreement, dated as of December 14, 1999 between Kenneth A.
Shulman and Broadview Networks Holdings, Inc.+
10.33 Broadview Networks 1997 Stock Option Plan*
10.34 Broadview Networks 2000 Long Term Incentive Plan*
10.35 Broadview Networks 2000 Employee Stock Purchase Plan*
21.1 Subsidiaries of Broadview Networks Holdings, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Mayer, Brown & Platt (included in Exhibit 5.1)*
24.1 Power of Attorney+
27.1 Financial Data Schedule
(b) Financial Statement Schedule
99.1 Report of Independent Accountants on Financial Statement Schedule--
Valuation and qualifying accounts
99.2 Valuation and qualifying accounts
</TABLE>
- --------
*To be filed by amendment
+Previously filed
<PAGE>
Exhibit 3.1
Annex A
-------
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BROADVIEW NETWORKS HOLDINGS, INC.
(a Delaware corporation)
ARTICLE ONE
-----------
The name of the Corporation is Broadview Networks Holdings, Inc. (the
"Corporation").
- ------------
ARTICLE TWO
-----------
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, DE 19805-1297, in the County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
ARTICLE THREE
-------------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "GCL").
ARTICLE FOUR
------------
4.1 Authorized Capital Stock. The Corporation shall have the authority to
------------------------
issue an aggregate of One Hundred Sixty Million (160,000,000) shares of capital
stock, consisting of One Hundred Fifty Million (150,000,000) shares of common
stock, par value $.01 per share ("Common Stock"), and Ten Million (10,000,000)
shares of preferred stock, par value $.01 per share ("Preferred Stock").
4.2 Common Stock. A statement of the designations, powers, preferences,
------------
rights, qualifications, limitations and restriction in respect to the shares of
Common Stock is as follows:
(a) Dividends. Unless otherwise provided in this Amended and Restated
---------
Certificate of Incorporation (this "Certificate"), the Board of Directors of the
Corporation may cause dividends to be paid to the holders of shares of Common
Stock out of funds legally available for the payment of dividends by declaring
an amount per share as a dividend. When and as dividends are declared, whether
payable in cash, in property or in shares of stock or other securities of the
Corporation, the holders of Common Stock shall be entitled to share ratably
according to the
1
<PAGE>
number of shares of Common Stock held by them, in such dividends. The Board of
Directors may set apart out of funds legally available for the payment of
dividends, a reserve or reserves for any proper purpose, and may from time to
time, in its absolute judgment and discretion, increase, abolish, diminish and
vary any reserve or reserves so set apart.
(b) Liquidation Rights. Unless otherwise provided in this Certificate, in
------------------
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, the holders of Common Stock shall be entitled
to share ratably, according to the number of shares of Common Stock held by
them, in all remaining assets of the Corporation available for distribution to
its stockholders.
(c) Voting Rights. Except as otherwise provided in this Certificate or by
-------------
applicable law, the holders of Common Stock shall be entitled to vote on each
matter on which the stockholders of the Corporation shall be entitled to vote,
and each holder of Common Stock shall be entitled to one vote for each share of
such stock held by him.
4.3 Preferred Stock. The Board of Directors is authorized, without
---------------
stockholder action and subject to limitation prescribed by law and the
provisions of this ARTICLE FOURTH, to provide for the issuance of up to Ten
Million (10,000,000) shares of Preferred Stock. The Preferred Stock may be
issued from time to time by the Board as shares of one or more series. The
description of shares of each series of Preferred Stock, including any
designations, preferences, conversion and other rights, voting powers,
restrictions, limitation as to dividends, qualifications, and terms and
conditions of redemption shall be as set forth in resolutions adopted by the
Board, and articles of amendment shall be filed pursuant to Section 151 of the
GCL with respect to issuance of such Preferred Stock, prior to the issuance of
any shares of such series.
(a) The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(1) The number of shares constituting the series and the distinctive
designation of the series;
(2) The dividend rate (or the method of calculation of dividends) on
the shares of the series, whether dividends will be cumulative, and if so, from
which date or dates, and the relative rights of priority, if any, of payment of
dividends on shares of the series;
(3) Whether the series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(4) Whether the series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
2
<PAGE>
(5) Whether or not the shares of that series shall be redeemable or
exchangeable, and, if so, the terms and conditions of such redemption or
exchange, as the case may be, including the date or dates upon or after which
they shall be redeemable or exchangeable, as the case may be, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(6) Whether the series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(7) The rights of the shares of the series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation and the
relative rights or priority, if any, of payment of shares of the series; and
(8) Any other relative rights, preferences and limitations of that
series.
(b) Except for any difference so provided by the Board of Directors, the
shares of Preferred Stock will rank on parity with respect to the payment of
dividends and to the distribution of assets upon liquidation.
(c) Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or which, if
convertible or exchangeable, have been converted into or exchanged for shares of
stock of any other class or classes, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as shares of the same or
any other series of Preferred Stock.
ARTICLE FIVE
------------
5.1 Stockholder Action. Any action required or permitted to be taken by
------------------
the stockholders must be effected at a duly called annual or special meeting of
such stockholders, and may not be effected by a consent in writing by any such
stockholders.
5.2 Voting. At all meetings of stockholders, each stockholder shall be
------
entitled to vote, in person or by proxy, each share of voting stock owned by
such stockholder of record on the record date for the meeting. At each meeting
of the stockholders, except where otherwise provided by this Certificate, the
Bylaws of the Corporation, or required by law, the holders of at least a
majority of the issued and outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. When a quorum is
present or represented at any meeting, the affirmative vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question, matter or proposal brought before such meeting
unless the question is one upon which, by express provision of law, this
Certificate, the Bylaws or, with respect to a class or series of Preferred
Stock, the terms of the resolution or resolutions adopted by the Board of
Directors pursuant to ARTICLE FOUR applicable thereto, a different
3
<PAGE>
vote is required, in which case such express provision shall govern and control
the decision of such question. Any stockholder who is in attendance at a meeting
of stockholders either in person or represented by proxy, but who abstains from
the vote on any matter, shall not be deemed present or represented at such
meeting for purposes of the preceding sentence with respect to such vote, but
shall be deemed present or represented at such meeting for all other purposes.
ARTICLE SIX
-----------
6.1 Number of Directors. Subject to the rights of the holders of any
-------------------
series of Preferred Stock to elect additional directors under specified
circumstances, the number of directors that shall constitute the Board of the
Corporation shall be determined from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board of
Directors.
6.2 Classified Board. The directors of the Corporation (other than any
----------------
directors who may be elected by holders of any series of Preferred Stock then
outstanding) shall be and are divided into three classes: Class I, Class II and
Class III. The number of directors in each class shall be as nearly equal as
the then-authorized number of directors constituting the Board of Directors
permits. Each director shall serve for a term ending on the date of the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for a
term ending on the date of the annual meeting next following the end of the
calendar year 2000, the directors first elected to Class II shall serve for a
term ending on the date of the second annual meeting next following the end of
the calendar year 2000, and the directors first elected to Class III shall serve
for a term ending on the date of the third annual meeting next following the end
of the calendar year 2000. Any director who may be elected by holders of any
series of Preferred Stock then outstanding shall serve for a term ending on the
date of the next annual meeting following the annual meeting at which such
director was elected. Directors need not be stockholders of the Corporation.
Directors must be elected by written ballot.
6.3 Increase or Decrease in Authorized Number of Directors. In the event
------------------------------------------------------
of any increase or decrease in the authorized number of directors:
(a) Each director then serving shall nevertheless continue as a director of
the class of which such director is a member until the expiration of such
director's term, or such director's prior death, retirement, resignation or
removal; and
(b) Newly created or eliminated directorships resulting from any increase
or decrease shall be apportioned by the Board of Directors among the three
classes so as to keep the number of directors in each class as nearly equal as
possible.
6.4 Removal. Any director may be removed from office only for cause by
-------
the
4
<PAGE>
affirmative vote of the holders of at least two-thirds (2/3) of all the Voting
Stock (as defined below), voting together as a single class. "Voting Stock"
shall mean the Common Stock and any Preferred Stock entitled to vote generally
in the election of directors of the Corporation.
6.5 Vacancies. Except as otherwise required by law, vacancies on the
---------
Board of Directors and newly created directorships may be filled by a majority
of the directors then in office though less than a quorum, and each director so
chosen shall hold office for the remaining term of the class of directors to
which such director is elected. If there are no directors in office, then an
election of directors may be held in the manner provided by law.
6.6 Preferred Stock Directors. Notwithstanding the foregoing, whenever
-------------------------
the holders of one or more classes or series of Preferred Stock shall have the
right, voting separately as a class or series, to elect directors, the election,
term of office, filling of vacancies, removal and other features of such
directorships shall be governed by the terms of the resolution or resolutions
adopted by the Board of Directors pursuant to ARTICLE FOUR applicable thereto,
and each director so elected shall not be subject to the provisions of this
ARTICLE SIX unless otherwise provided therein.
ARTICLE SEVEN
-------------
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(2) The directors shall have the power to make, alter, amend, change, add
to or repeal the Bylaws of the Corporation.
(3) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the GCL, this
Certificate, and the Bylaws.
ARTICLE EIGHT
-------------
8.1 Limits on Director Liability. Directors of the Corporation shall have
----------------------------
no personal liability to the Corporation or its stockholders for monetary
damages for breach of conduct as a director; provided that nothing contained in
--------
this ARTICLE EIGHT shall eliminate or limit the liability of a director (i) for
any breach of a director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct by a director or a knowing violation of law by a
director, (iii) for voting or assenting to an unlawful
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distribution, or (iv) for entering into any transaction from which the director
will personally receive a benefit in money, property, or services to which the
director is not legally entitled. This does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of such director's fiduciary duties. If the GCL is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then by virtue of this ARTICLE EIGHT the liability of a Director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the GCL, as so amended.
8.2 Indemnification.
-------------------
(a) Third Party Actions. The Corporation shall indemnify any person who
-------------------
was or is a party or is threatened to be made a party (including, without
limitation, as a witness) to any threatened, pending, or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal, including all appeals (other than an action, suit or
proceeding by or in the right of the Corporation) by reason of the fact that
such person is or was a director or officer of the Corporation (and the
Corporation, in the discretion of the Board, may so indemnify a person by reason
of the fact that such person is or was an employee or agent of the Corporation
or is or was serving at the request of the Corporation in any other capacity for
or on behalf of the Corporation), against reasonable expenses (including
attorneys' fees), judgments, decrees, fines, penalties and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if, in the case of conduct in such person's
official capacity with the corporation, such person acted in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and in all other cases, such person acted in good
faith and was at least not opposed to the Corporation's best interests, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful, except that no indemnification shall
be made in respect to any claim, issue or matter as to which such person shall
have been finally adjudged to be liable for (i) negligence or misconduct in the
performance of such person's duty to the Corporation unless and only to the
extent that the court in which such action or suit was brought, or any other
court of competent jurisdiction, shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper, or (ii) violating any of the terms or provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, or any of the
rules or regulations promulgated thereunder. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith or in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
Notwithstanding the foregoing, the Corporation shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized by the
Board or a committee thereof. No indemnity shall be provided by the
6
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Corporation for expenses that have been paid directly by an insurance carrier
under a policy of directors' and officers' liability insurance maintained by the
Corporation.
(b) Actions By or in the Right of the Corporation. The Corporation shall
---------------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit, including all appeals,
by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation (and the Corporation, in the discretion of the Board, may so
indemnify a person by reason of the fact that such person is or was an employee
or agent of the Corporation or is or was serving at the request of the
Corporation in any other capacity for or on behalf of the Corporation), against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if,
in the case of conduct in such person's official capacity with the corporation,
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the Corporation's best interests, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable for (i) negligence or misconduct in the
performance of such person's duty to the Corporation unless and only to the
extent that the court in which such action or suit was brought, or any other
court of competent jurisdiction, shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper or (ii) violating any of the terms or provisions of
Section 16 of the Securities Exchange Act of 1934, as amended, or any of the
rules or regulations promulgated thereunder. Notwithstanding the foregoing, the
Corporation shall be required to indemnify an officer or director in connection
with an action, suit or proceeding initiated by such person only if such action,
suit or proceeding was authorized by the Board or a committee thereof. No
indemnity shall be provided by the Corporation for expenses that have been paid
directly by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Corporation.
(c) Indemnify if Successful or Partially Successful. To the extent that a
-----------------------------------------------
present or former director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this Section 8.2, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
If a director, officer, employee or agent of the Corporation is only
partially successful in the defense, investigation, settlement or appeal of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Section 8.2, and as a result is not entitled to indemnification by the
Corporation for the total amount of the expenses (including attorneys' fees),
costs, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by
7
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such person, the Corporation shall nevertheless provide indemnification to the
extent such person has been partially successful.
(d) Standard of Conduct. Except in a situation governed by subsection (c)
-------------------
of this Section 8.2, any indemnification under subsections (a) and (b) of this
Section 8.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in subsections (a) and (b) of this Section 8.2. Such determination shall
be made, with respect to a person who is a director or officer at the time of
such determination, (1) by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (4) by the stockholders, but shares owned
by or voted under the control of directors who are parties to the proceeding may
not be voted on determination. The determination required by clauses (1), (2)
and (3) of this subsection (d) may in either event be made by the written
consent of the majority required by each clause.
(e) Advancement of Expenses. Expenses (including attorneys' fees) of each
-----------------------
officer and directory hereunder indemnified actually and reasonably incurred in
defending any civil, criminal, administrative or investigative action, suit or
proceeding or threat thereof shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of (i) an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in the Article and (ii) a written affirmation of
director's good faith belief that such person has performed such person's duty
to the Corporation, upon request by the Corporation and if required under
applicable law. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon the
receipt of the aforesaid undertaking and such terms and conditions, if any, as
the Corporation deems appropriate.
(f) Nonexclusivity. The indemnification and advancement of expenses
--------------
provided by, or granted pursuant to, this ARTICLE EIGHT shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
SECTION 8.3 Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
8
<PAGE>
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of the GCL.
SECTION 8.4 Definitions.
-----------
(a) For purposes of this ARTICLE EIGHT, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this ARTICLE EIGHT with
respect to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had continued.
(b) References to "other capacities" shall include serving as a trustee or
agent for any employee benefit plan; references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this ARTICLE
EIGHT.
(c) The indemnification and advancement of expenses provided by, or
granted pursuant to, this ARTICLE EIGHT shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(d) The right to indemnification conferred by this ARTICLE EIGHT shall be
deemed to be a contract between the Corporation and each person referred to
herein until amended or repealed, but no amendment to or repeal of these
provisions shall apply to or have any effect on the right to indemnification of
any person with respect to any liability or alleged liability of such person for
or with respect to any act or omission of such person occurring prior to such
amendment or repeal.
(e) A person shall be deemed to have acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe such
9
<PAGE>
person's conduct was unlawful, if such person's action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used
herein shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director or executive officer.
The provisions of this subsection shall not be deemed to be exclusive or to
limit in any way the circumstances in which a person may be deemed to have met
the applicable standard of conduct set forth in Section 8.2(a) or Section 8.2(b)
of this ARTICLE EIGHT, as the case may be.
Section 8.5 Additional Indemnification. The Corporation may, by action of
--------------------------
its Board of Directors, provide indemnification to such of the directors,
officers, employees and agents of the Corporation to such extent and to such
effect as the Board of Directors shall determine to be appropriate and
authorized by GCL.
Section 8.6 Effect of Amendments. Neither the amendment, change,
--------------------
alteration nor repeal of this ARTICLE EIGHT, nor the adoption of any provision
of this Certificate, the Bylaws of the Corporation, nor, to the fullest extent
permitted by the GCL, any modification of law, shall eliminate or reduce the
effect of this ARTICLE EIGHT or the rights or any protections afforded under
this ARTICLE EIGHT in respect of any acts or omissions occurring prior to such
amendment, repeal, adoption or modification.
ARTICLE NINE
------------
The Corporation reserves the right to repeal, alter or amend this
Certificate in the manner now or hereafter prescribed by statute. No repeal,
alteration or amendment of this Certificate shall be made unless the same is
first approved by the Board of Directors of the Corporation pursuant to a
resolution adopted by the directors then in office in accordance with this
Certificate, the Bylaws and applicable law and thereafter approved by the
stockholders. The affirmative vote of the holders of at least two thirds (2/3)
of the issued and outstanding Voting Stock, voting as one class, shall be
required to amend or repeal this Certificate or the Bylaws of the Corporation.
Votes regarding amendments to this Certificate or the Bylaws must be by written
ballot.
ARTICLE TEN
-----------
The Corporation shall be governed by Section 203 of the GCL.
ARTICLE ELEVEN
--------------
10
<PAGE>
This Certificate shall constitute a restatement of, and shall supersede the
Amended and Restated Certificate of Incorporation of the Corporation, dated
___________ __, 2000.
11
<PAGE>
Exhibit 3.2
================================================================================
BROADVIEW NETWORKS HOLDINGS, INC.
Incorporated under the laws
of the State of Delaware
_________________________
AMENDED AND RESTATED BYLAWS
_________________________
Effective as of ___________, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE IOffices
SECTION 1.1 Registered Office............................................1
SECTION 1.2 Other Offices................................................1
ARTICLE IIMeetings of Stockholders
SECTION 2.1 Annual Meetings..............................................1
SECTION 2.2 Special Meetings.............................................1
SECTION 2.3 Notice of Meetings...........................................2
SECTION 2.4 Quorum.......................................................2
SECTION 2.5 Organization.................................................3
SECTION 2.6 Order of Business............................................3
SECTION 2.7 Voting.......................................................3
SECTION 2.8 Informal Action by Stockholders..............................4
SECTION 2.9 Voting Procedures and Inspections of Elections...............4
SECTION 2.10 Advance Notification of Proposals at Stockholders' Meetings..5
SECTION 2.11 List of Stockholders.........................................5
SECTION 2.12 Proxies......................................................6
ARTICLE IIIBoard of Directors
SECTION 3.1 General Powers...............................................6
SECTION 3.2 Number and Term of Office....................................6
SECTION 3.3 Election of Directors........................................6
SECTION 3.4 Resignation, Removal and Vacancies...........................7
SECTION 3.5 Meetings.....................................................7
SECTION 3.6 Directors' Consent in Lieu of Meeting........................8
SECTION 3.7 Action by Means of Conference Telephone
or Similar Communications Equipment..........................9
SECTION 3.8 Committees...................................................9
SECTION 3.9 Compensation.................................................9
SECTION 3.10 Preferred Stock Directors....................................9
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<PAGE>
ARTICLE IVOfficers
SECTION 4.1 Executive Officers...........................................10
SECTION 4.2 Authority and Duties.........................................10
SECTION 4.3 Other Officers...............................................10
SECTION 4.4 Term of Office, Resignation and Removal......................10
SECTION 4.5 Vacancies....................................................10
SECTION 4.6 The Chairman.................................................11
SECTION 4.7 Chief Executive Officer......................................11
SECTION 4.8 President....................................................11
SECTION 4.9 Vice President...............................................11
SECTION 4.10 The Secretary................................................11
SECTION 4.11 The Chief Financial Officer..................................12
ARTICLE VContracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 5.1 Execution of Documents........................................12
SECTION 5.2 Deposits......................................................12
SECTION 5.3 Proxies in Respect of Stock or Other
Securities of Other Corporations..............................12
ARTICLE VIShares and Their Transfer; Fixing Record Date
SECTION 6.1 Certificates for Shares.......................................13
SECTION 6.2 Transfer of Stock.............................................13
SECTION 6.3 Addresses of Stockholders.....................................13
SECTION 6.4 Replacement...................................................14
SECTION 6.5 Regulations...................................................14
SECTION 6.6 Fixing Date for Determination of Stockholders of Record.......14
ARTICLE VIISeal
ARTICLE VIIIFiscal Year
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<PAGE>
ARTICLE IXIndemnification and Insurance
SECTION 9.1 Indemnification...............................................15
SECTION 9.2 Insurance.....................................................18
SECTION 9.3 Definitions...................................................18
ARTICLE XSection 203
ARTICLE XIAmendment
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<PAGE>
AMENDED AND RESTATED BYLAWS
of
BROADVIEW NETWORKS HOLDINGS, INC.
PREAMBLE
These Bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "GCL") and the Amended and Restated Certificate of
Incorporation of Broadview Networks Holdings, Inc., a Delaware corporation (the
"Corporation") then in effect (the "Certificate"). In the event of a direct
conflict between the provisions of these Bylaws and (i) the mandatory provisions
of the GCL or the provisions of the Certificate, such provisions of the GCL or
the Certificate, as the case may be, will be controlling or (ii) a permissive
provision of the GCL, such provision of the GCL shall be controlling unless
otherwise decided by the Corporation's Board of Directors (the "Board").
ARTICLE I
Offices
-------
SECTION 1.1 Registered Office. The registered office of the Corporation
-----------------
in the State of Delaware shall be at 1013 Centre Road, Wilmington, Delaware
19805-1297, in the County of New Castle, and the registered agent in charge
thereof is Corporation Service Company.
SECTION 1.2 Other Offices. The Corporation may also have an office or
-------------
offices at any other place or places within or outside the State of Delaware.
ARTICLE II
Meetings of Stockholders
------------------------
SECTION II.1 Annual Meetings. The annual meeting of the stockholders for
---------------
the election of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held at such place, date and hour as
shall be fixed by the Board, within or without the State of Delaware, and
designated in the notice of meeting.
SECTION II.2 Special Meetings. Except as otherwise required by law or the
----------------
Certificate, special meetings of the stockholders may be called only by the
Board or a committee of the Board expressly authorized to call a special
meeting, and the business to be conducted at a special meeting is limited to
business brought before the meeting by the Board.
<PAGE>
SECTION II.3 Notice of Meetings. Except as otherwise required by law or
------------------
by the Certificate or these Bylaws, notice of each annual or special meeting of
the stockholders shall be given to each stockholder of record entitled to vote
at such meeting and, if and to the extent required by law, to each stockholder
of the corporation, not less than twenty (20) nor more than sixty (60) days
before the day on which the meeting is to be held, except that notice of a
meeting to act on an amendment to the Certificate, a plan of merger or share
exchange, a proposed sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation other than in the usual or
regular course of business, or the dissolution of the Corporation shall be given
no fewer than thirty (30) days nor more than sixty (60) days before the meeting
date. Written notice may be transmitted by mail (postage prepaid), private
carrier, or personal delivery; telegraph or teletype; cable or other telephonic
transmission to the stockholder at such person's address as it appears in the
records of the Corporation. If these forms of written notice are impracticable
in the view of the Board, the Chairman of the Board, the Chief Executive Officer
or the Secretary, written notice may be transmitted by an advertisement in a
newspaper of general circulation in the area where published. If mailed, such
notice shall be deemed effective when deposited in the United States mail,
first-class postage prepaid, properly addressed to the stockholder at such
person's address as it appears in the Corporation's records. Notice dispatched
by telegraph, teletype, or facsimile equipment shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five (5) days after first publication.
Every such notice shall state the place, the date and hour of the meeting, and,
in case of a special meeting, the purpose or purposes for which the meeting is
called. Except as otherwise required by law, notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy, or who shall, in person or by
attorney thereunto authorized, waive such notice in writing to be delivered to
the Corporation (for inclusion in the minutes or the corporate records), either
before or after such meeting. Except as otherwise provided in these Bylaws,
neither the business to be transacted at, nor the purpose of, any meeting of the
stockholders need be specified in any such notice or waiver of notice. Notice
of any adjourned meeting of stockholders shall not be required to be given,
except when expressly required by law.
SECTION II.4 Quorum. At each meeting of the stockholders, the holders of
------
at least a majority of the issued and outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum for the transaction of business, except as
otherwise required by law, these Bylaws or the Certificate. In the absence of a
quorum, a majority in interest of the stockholders present in person or
represented by proxy and entitled to vote, or, in the absence of all the
stockholders entitled to vote, any officer entitled to preside at, or act as
secretary of, such meeting, shall have the power to adjourn the meeting to
another time and/or place, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally called.
If the
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adjournment is for more than one hundred thirty (130) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. Once a share is represented for any purpose at a
meeting other than solely to object to holding the meeting or transacting
business thereat, it is deemed present for quorum purposes for the remainder of
the meeting and any adjournment thereof (unless a new record date is or must be
set for the adjourned meeting) notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION II.5 Organization. At each meeting of the stockholders, one of
------------
the following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:
(a) the Chairman;
(b) the Chief Executive Officer;
(c) the President;
(d) any Vice President;
(e) any officer of the Corporation designated by the Board to act as
chairman of such meeting and to preside thereat; or
(f) a stockholder of record who shall be chosen chairman of such
meeting by a majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereat.
The Secretary or, if such person shall be presiding over such meeting in
accordance with the provisions of this Section 2.5 or if such person shall be
absent from such meeting, the person (who shall be an Assistant Secretary, if an
Assistant Secretary has been appointed and is present) whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
SECTION II.6 Order of Business. The order of business at each meeting of
-----------------
the stockholders shall be determined by the chairman of such meeting.
SECTION II.7 Voting. Except as may otherwise be required by law or these
------
Bylaws, stockholders shall have the voting rights specified in the Certificate.
SECTION II.8 Informal Action by Stockholders. Any action required or
-------------------------------
permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of such stockholders and may not be effected by a
consent in writing by any such stockholders.
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<PAGE>
SECTION II.9 Voting Procedures and Inspections of Elections.
----------------------------------------------
(a) The Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written
report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of such
person's duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of
such person's ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii)
count all votes and ballots, (iv) determine and retain for a reasonable
period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares represented at the meeting, and their count of all votes
and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of the duties of the
inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless a court of competent jurisdiction, upon
application by a stockholder, shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, ballots and the regular books and
records of the Corporation, except that the inspectors may consider other
reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers, their nominees or
similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder
holds of record. If the inspectors consider other reliable information for
the limited purpose permitted in this Section 2.9, the inspectors at the
time they make their certification pursuant to subsection (b)(v) of this
Section 9 shall specify the precise information considered by them
including the person or persons from whom they obtained the information,
when the information was obtained, the means by which the information was
obtained and the basis for the inspectors' belief that such information is
accurate and reliable.
SECTION II.10 Advance Notification of Proposals at Stockholders' Meetings.
-----------------------------------------------------------
If a stockholder desires to submit a proposal for consideration at an annual
stockholders' meeting,
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or to nominate persons for election as directors at any stockholders' meeting
duly called for the election of directors, written notice of such stockholders'
intent to make such a proposal or nomination must be given and received by the
Secretary of the Corporation at the principal executive offices of the
Corporation either by personal delivery or by United States mail not later than
sixty (60) days or more than ninety (90) days prior to the anniversary date of
the immediately preceding annual meeting. If the annual meeting is set for a
date that is not within thirty (30) calendar days of the anniversary date of the
immediately preceding annual meeting, notice by the stockholder must be
delivered by the close of business on the tenth day following the date on which
notice of such meeting is first sent or given to stockholders. Each notice shall
describe the proposal or nomination in sufficient detail for the proposal or
nomination to be summarized on the agenda for the meeting and shall set forth:
(i) the name and address, as it appears on the books of the Corporation, of the
stockholder who intends to make the proposal or nomination; (ii) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to present such proposal or nomination; and (iii) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder. In addition, in the case of a stockholder proposal, the notice
shall set forth the reasons for conducting such proposed business at the meeting
and any material interest of the stockholder in such business. In the case of a
nomination of any person for election as a director, the notice shall set forth:
(i) the name and address of any person to be nominated; (ii) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (iii) such
other information regarding such nominee proposed by such stockholder as would
be required to be included in a proxy statement filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (iv) the consent of
each nominee to serve as a director of the Corporation if so elected. The
presiding officer of the meeting shall, if the facts warrant, refuse to
acknowledge a proposal or nomination not made in compliance with the foregoing
procedure, and any such proposal or nomination not properly brought before the
meeting shall not be considered.
SECTION II.11 List of Stockholders. It shall be the duty of the Secretary
--------------------
or other officer of the Corporation who shall have charge of its stock ledger to
prepare and make, at least ten (10) days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, shareholder's agent, or
shareholder's attorney, for any purpose germane to any such meeting, during
ordinary business hours, for a period of at least ten (10) days prior to such
meeting, either at a place within the city where such meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. Such list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder, shareholder's agent or
shareholder's attorney during the meeting or adjournment.
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SECTION II.12 Proxies. A stockholder may vote its shares either in person
-------
or by proxy. A stockholder may appoint a proxy to vote or otherwise act for the
stockholder (including authorizing the proxy to receive, or to waive, notice of
any stockholders' meeting within the effective period of such proxy) by signing
an appointment form, either personally or by the stockholders' attorney-in-fact.
An appointment of a proxy is effective when received by the Secretary or other
office or agent authorized to tabulate votes and is effective for eleven (11)
months unless a longer period is expressly provided in the appointment form.
The proxy's authority may be limited to a particular meeting or may be general
and authorize the proxy to represent the stockholder at any meeting of
stockholders held within the time provided in the appointment form. Subject to
the GCL and to any express limitation on the proxy's authority appearing on the
face of the appointment form, the Corporation is entitled to accept the proxy's
vote or other action as that of the stockholder making the appointment.
ARTICLE III
Board of Directors
------------------
SECTION III.1 General Powers. The business, property and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate directed or required to be
exercised or done by the stockholders.
SECTION III.2 Number and Term of Office. The number of directors shall be
-------------------------
fixed in accordance with the Certificate. The Board shall be classified as set
forth in the Certificate. Directors need not be stockholders. Each director
shall hold office until such person's successor is elected and qualified, or
until such person's earlier death, resignation, retirement, disqualification or
removal in the manner hereinafter provided. The number of directors may be
changed from time to time in accordance with the Certificate, but no decrease in
the number of directors shall have the effect of shortening the term of any
incumbent director.
SECTION III.3 Election of Directors. At each meeting of the stockholders
---------------------
for the election of directors at which a quorum is present, the persons
receiving the greatest number of votes, up to the number of directors to be
elected, of the stockholders present in person or by proxy and entitled to vote
thereon, shall be elected directors of the class or classes for which the
election was held; provided that for purposes of such vote no stockholder shall
be allowed to cumulate its votes. Elections of directors shall be by written
ballot.
SECTION III.4 Resignation, Removal and Vacancies.
----------------------------------
(a) Resignation. Any director may resign at any time by giving
-----------
written notice to the Board, the Chairman, the Chief Executive Officer or
the Secretary. Such resignation shall take effect at the time specified
therein or, if the time be not specified, upon delivery thereof; and,
unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
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(b) Removal. Any director may be removed from office only for cause
-------
by the affirmative vote of the holders of at least two-thirds (2/3) of all
the Voting Stock (as defined below), voting together as a single class.
"Voting Stock" shall mean the common stock and any preferred stock entitled
to vote generally in the election of directors of the Corporation.
(c) Vacancies. Except as otherwise required by law, vacancies on the
---------
Board and newly created directorships may be filled by a majority of the
directors then in office though less than a quorum, and each director so
chosen shall hold office for the remaining term of the class of directors
to which such person is elected. If there are no directors in office, then
an election of directors may be held in the manner provided by law.
SECTION III.5 Meetings.
--------
(a) Regular Meetings. As soon as practicable after each annual
----------------
election of directors, the Board shall meet for the purpose of organization
and the transaction of other business, unless it shall have transacted all
such business by written consent pursuant to Section 6 of this Article III.
(b) Special Meetings. Other meetings of the Board shall be held at
----------------
such times and places as the Board, the Chairman, the Chief Executive
Officer or any two directors shall from time to time determine.
(c) Notice of Meetings. Notice shall be given to each director for
------------------
each regular and special meeting, including the time, place and purpose of
such meeting. Notice of each such meeting shall be mailed to each
director, addressed to such person at such person's residence or usual
place of business, at least two (2) days before the date on which such
meeting is to be held, or shall be sent to such person at such place by
telegraph, cable, wireless or other form of recorded communication, or be
delivered personally or by telephone not later than the day before the day
on which such meeting is to be held, but notice need not be given to any
director who shall attend such meeting. A written waiver of notice, signed
by the person entitled thereto and delivered to the Corporation, whether
before or after the time of the meeting stated therein, shall be deemed
equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such place
-----------------
or places within or outside the State of Delaware as the Board may from
time to time determine, or as shall be designated in the respective notices
or waivers of notice thereof.
(e) Quorum and Manner of Acting. A majority of the total number of
---------------------------
directors then in office shall be present in person at any meeting of the
Board in order to
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constitute a quorum for the transaction of business at such meeting, and
the vote of a majority of those directors present at any such meeting at
which a quorum is present shall be necessary for the passage of any
resolution or act of the Board, except as otherwise expressly required by
law, the Certificate or these Bylaws. In the absence of a quorum for any
such meeting, a majority of the directors present thereat may adjourn such
meeting from time to time until a quorum shall be present and no further
notice thereof need be given. A director who is in attendance at a meeting
of the Board but who abstains from the vote on any matter by announcing
such person's abstention to the person acting as secretary of the meeting
for inclusion in the minutes and not voting on such matter shall not be
deemed present at such meeting for purposes of the preceding sentence with
respect to such vote, but shall be deemed present at such meeting for all
other purposes.
(f) Organization. At each meeting of the Board, one of the following
------------
shall act as chairman of the meeting and preside thereat, in the following
order of precedence:
(1) the Chairman;
(2) the Chief Executive Officer (if a director); or
(3) a person designated by the Board.
The Secretary or, in the case of such person's absence, any person (who
shall be an Assistant Secretary, if an Assistant Secretary has been
appointed and is present) whom the chairman of the meeting shall appoint
shall act as secretary of such meeting and keep the minutes thereof.
SECTION III.6 Directors' Consent in Lieu of Meeting. Unless otherwise
-------------------------------------
restricted by the Certificate or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, without prior notice and without a vote, if one or more
written consents, setting forth the action so taken, are signed by all the
members of the Board or committee, either before or after the action taken, and
such consent is filed with the minutes of proceedings of the Board or committee.
Action taken by written consent of directors without a meeting is effective when
the last director signs the consent, unless the consent specifies a later
effective date.
SECTION III.7 Action by Means of Conference Telephone or Similar
--------------------------------------------------
Communications Equipment. Any one or more members of the Board or any committee
- ------------------------
thereof, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION III.8 Committees. The Board, by resolution adopted by a majority
----------
of the Board, may designate one or more committees, each such committee to
consist of one or more
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directors. Except as expressly limited by the GCL or the Certificate, any such
committee shall have and may exercise such powers as the Board may determine and
specify in the resolution designating such committee. The Board, by resolution
adopted by a majority of the whole Board, also may designate one or more
additional directors as alternate members of any such committee to replace any
absent or disqualified member at any meeting of the committee, and at any time
may change the membership of any committee or amend or rescind the resolution
designating the committee. In the absence or disqualification of a member or
alternate member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of any such absent or disqualified member, provided that
the director so appointed meets any qualifications stated in the resolution
designating the committee. Each committee shall keep a record of proceedings and
report the same to the Board to such extent and in such form as the Board may
require. Unless otherwise provided in the resolution designating a committee, a
majority of all of the members of any such committee may select its Chairman,
fix its rules or procedure, fix the time and place of its meetings and specify
what notice of meetings, if any, shall be given.
SECTION III.9 Compensation. The Board shall have the authority to fix
------------
the compensation of directors, which may include their expenses, if any, of
attendance at each meeting of the Board or any committee.
SECTION III.10 Preferred Stock Directors. Notwithstanding the foregoing,
-------------------------
whenever the holders of one or more classes or series of preferred stock shall
have the right, voting separately as a class or series, to elect directors, the
election, term of office, filling of vacancies, removal and other features of
such directorships shall be governed by the terms of the resolution or
resolutions adopted by the Board pursuant to ARTICLE FOURTH of the Certificate
applicable thereto, and each director so elected shall not be subject to the
provisions of this ARTICLE III unless otherwise provided therein.
ARTICLE IV
Officers
--------
SECTION IV.1 Executive Officers. The executive officers of the
------------------
Corporation shall be a Chairman, a Chief Executive Officer, a President, Vice
Presidents, a Secretary and a Chief Financial Officer, and may include such
other officers as the Board may appoint pursuant to Section 3 of this Article
IV. Any two or more offices may be held by the same person.
SECTION IV.2 Authority and Duties. All officers, as between themselves
--------------------
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these Bylaws or, to the
extent so provided, by the Board.
SECTION IV.3 Other Officers. The Corporation may have such other
--------------
officers, agents and employees as the Board may deem necessary, including one or
more Assistant Secretaries,
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<PAGE>
one or more Assistant Chief Financial Officers, and one or more Vice Presidents,
each of whom shall hold office for such period, have such authority, and perform
such duties as the Board, the Chairman, or the Chief Executive Officer may from
time to time determine. The Board may delegate to any principal officer the
power to appoint and define the authority and duties of, or remove, any such
officers, agents or employees.
SECTION IV.4 Term of Office, Resignation and Removal.
---------------------------------------
(a) Term of Office. All executive officers shall be elected or
--------------
appointed by the Board and shall hold office for such term as may be
prescribed by the Board. Each executive officer shall hold office until
such person's successor has been elected or appointed and qualified or
until such person's earlier death or resignation or removal in the manner
hereinafter provided. The Board may require any executive officer to give
security for the faithful performance of such person's duties.
(b) Resignation. Any officer may resign at any time by delivering
-----------
written notice to the Board, the Chairman, the Chief Executive Officer or
the Secretary. Such resignation shall take effect at the time specified
therein or, if the time be not specified, at the time notice is given.
Except as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
(c) Removal. All officers and agents elected or appointed by the
-------
Board shall be subject to removal at any time by the Board with or without
cause, subject to any agreements to the contrary.
SECTION IV.5 Vacancies. If the office of Chairman, Chief Executive
---------
Officer, President, Secretary or Chief Financial Officer becomes vacant for any
reason, the Board shall fill such vacancy, and if any other office becomes
vacant, the Board may fill such vacancy. Except as otherwise provided in these
Bylaws, any officer so appointed or elected by the Board shall serve only until
such time as the unexpired term of such person's predecessor shall have expired
and until such person's successor shall have been duly elected and qualified,
unless reelected or reappointed by the Board.
SECTION IV.6 The Chairman. The Chairman of the Board shall perform such
------------
duties as shall be assigned to such person by the Board from time to time and
shall preside over meetings of the Board and stockholders unless another officer
is appointed or designated by the Board as Chairman of such meeting.
SECTION IV.7 Chief Executive Officer. The Chief Executive Officer shall
-----------------------
have general charge and supervision of the operation of the business and affairs
of the Corporation. The Chief Executive Officer may sign certificates for shares
of the corporation, deeds, mortgages, bonds, contracts, or other instruments,
except when the signing and execution thereof have been expressly delegated by
the Board or by these Bylaws to some other officer or
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<PAGE>
agent of the corporation or are required by law to be otherwise signed or
executed by some other officer or in some other manner. Such person shall from
time to time make such reports of the affairs of the Corporation as the Board
may require and shall perform such other duties as may from time to time be
assigned to such person by the Board or the Chairman.
SECTION IV.8 President. The President shall perform such duties and have
---------
such other powers as may from time to time be prescribed by these Bylaws, the
Board, the Chairman or the Chief Executive Officer. In the event of the death
of the Chief Executive Officer or such person's inability to act, the President,
if any, shall perform the duties of the Chief Executive Officer, except as may
be limited by resolution of the Board, with all the powers of and subject to all
the restrictions upon the Chief Executive Officer.
SECTION IV.9 Vice President. Any Vice President may sign, with the
--------------
Secretary or Assistant Secretary, certificates for shares of the corporation.
Vice Presidents shall have, to the extent authorized by the Chief Executive
Officer or the Board, the same powers as the Chief Executive Officer to sign
deeds, mortgages, bonds, contracts, or other instruments. Vice Presidents shall
perform such other duties as from time to time may be assigned to them by the
Chief Executive Officer or by the Board.
SECTION IV.10 The Secretary. The Secretary shall, to the extent
-------------
practicable, attend all meetings of the Board and all meetings of the
stockholders and shall record the minutes of all proceedings in a book to be
kept for that purpose. Such person may give, or cause to be given, notice of
all meetings of the stockholders and of the Board, and shall perform such other
duties as may be prescribed by the Board, the Chairman or the Chief Executive
Officer, under whose supervision such person shall act. Such person shall keep
in safe custody the seal of the Corporation and affix the same to any duly
authorized instrument requiring it and, when so affixed, it may be attested by
such person's signature or by the signature of the Chief Financial Officer or,
if appointed, an Assistant Secretary or an Assistant Chief Financial Officer.
The Board may give general authority to any other officer to affix the seal of
the Corporation and to attest such affixing of the seal. Such person shall keep
in safe custody the certificate books and stockholder records, including
registers of the post office address of each stockholder and director, and such
other books and records as the Board may direct, and shall perform all other
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to such person by the Board, the Chairman or the Chief
Executive Officer.
SECTION IV.11 The Chief Financial Officer. The Chief Financial Officer
---------------------------
shall have the care and custody of the corporate funds and other valuable
effects, including securities, and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board. The
Chief Financial Officer shall disburse the funds of the Corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, and shall
render to the Chairman, Chief Executive Officer and directors, at the regular
meetings of the Board, or whenever they may
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<PAGE>
require it, an account of all of such person's transactions as Chief Financial
Officer and of the financial condition of the Corporation, and shall perform all
other duties incident to the office of Chief Financial Officer and such other
duties as from time to time may be assigned to such person by the Board, the
Chairman or the Chief Executive Officer.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
----------------------------------------------
SECTION V.1 Execution of Documents. The Board shall designate, by either
----------------------
specific or general resolution, the officers, employees and agents of the
Corporation who shall have the power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, checks, drafts and other orders for the payment of
money and other documents for and in the name of the Corporation, and may
authorize such officers, employees and agents to delegate such power (including
authority to redelegate) by written instrument to other officers, employees or
agents of the Corporation; and, unless so designated or expressly authorized by
these Bylaws, no officer, employee or agent shall have any power or authority to
bind the Corporation by any contract or engagement, to pledge its credit or to
render it liable pecuniarily for any purpose or to any amount.
SECTION V.2 Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board or Chief Financial Officer, or any other officer of
the Corporation to whom power in this respect shall have been given by the
Board, shall select.
SECTION V.3 Proxies in Respect of Stock or Other Securities of Other
--------------------------------------------------------
Corporations. The Board shall designate the officers of the Corporation who
- ------------
shall have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, and to vote or consent in respect of such
stock or securities. Such designated officers may instruct the person or
persons so appointed as to the manner of exercising such powers and rights, and
such designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its said powers
and rights.
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<PAGE>
ARTICLE VI
Shares and Their Transfer; Fixing Record Date
---------------------------------------------
SECTION VI.1 Certificates for Shares. Every owner of stock of the
-----------------------
Corporation shall be entitled to have a certificate certifying the number and
class of shares owned by such person in the Corporation, which shall be in such
form as shall be prescribed by the Board. Each certificate for shares shall be
numbered and issued in consecutive order. Certificates of stock in the
Corporation, if any, shall be signed, either manually or in facsimile by two of
the following officers in the name of the Corporation: the Chairman, or the
Chief Executive Officer or President, or any Vice President and by the Chief
Financial Officer (or an Assistant Chief Financial Officer, if appointed) or the
Secretary (or an Assistant Secretary, if appointed). Where a certificate is
countersigned by a transfer agent, other than the Corporation or an employee of
the Corporation, or by a registrar, the signatures of the Chairman or the Chief
Executive Officer or President or a Vice President and the Chief Financial
Officer or an Assistant Chief Financial Officer or the Secretary or an Assistant
Secretary may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the certificate may be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar were such officer,
transfer agent or registrar at the date of its issue. All certificates shall
include written notice of any restrictions which may be imposed on the
transferability of shares.
SECTION VI.2 Transfer of Stock. Upon surrender to the Corporation or the
-----------------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate of
stock in place of any certificate therefor issued by the Corporation to the
person entitled thereto, cancel the old certificate and record the transaction
in its stock transfer books.
SECTION VI.3 Addresses of Stockholders. Each stockholder shall designate
-------------------------
to the Secretary an address at which notices of meetings and all other corporate
notices may be served or mailed to him, and, if any stockholder shall fail to
designate such address, corporate notices may be served upon such stockholder by
mail directed to such stockholder at such stockholder's post office address, if
any, as the same appears on the share record books of the Corporation or at such
stockholder's last known post office address.
SECTION VI.4 Replacement. In case of the loss, destruction, mutilation
-----------
or theft of a certificate for any stock of the Corporation, a new certificate of
stock or uncertificated shares in place of any certificate therefor issued by
the Corporation may be issued upon satisfactory proof of such loss, destruction,
mutilation or theft and upon such terms as the Board may prescribe. The Board
may in its discretion require the owner of the lost, destroyed, mutilated or
stolen certificate, or such person's legal representative, to give the
Corporation a bond, in such sum and in such form and with such surety or
sureties as it may direct, to indemnify the
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<PAGE>
Corporation against any claim that may be made against it with respect to the
certificate alleged to have been lost, destroyed, mutilated or stolen.
SECTION VI.5 Regulations. The Board may make such rules and regulations
-----------
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issuance, transfer and registration of certificates for stock of the
Corporation.
SECTION VI.6 Fixing Date for Determination of Stockholders of Record. The
-------------------------------------------------------
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board, in order
that the Corporation may determine which stockholders are entitled to (i) notice
of or to vote at any meeting of stockholders or any adjournment thereof, (ii)
receive payment of any dividend, or (iii) notice for any other purpose. Such
record date shall be not more than sixty (60) days, and in the case of a meeting
of stockholders not less than ten (10) days prior to the date on which the
particular action requiring such determination is to be taken. If no record
date is fixed for the determination of stockholders entitled to notice of or to
vote at a meeting, the record date shall be the day immediately preceding the
date on which notice of the meeting is first given to stockholders. Such a
determination shall apply to any adjournment of the meeting unless the Board
fixes a new record date, which it shall do if the meeting is adjourned to a date
more than one hundred thirty (130) days after the date fixed for the original
meeting. If no record date is set for the determination of stockholders
entitled to receive payment of any stock dividend or distribution (other than
one involving a purchase, redemption, or other acquisition of the corporation's
shares) the record date shall be the date the Board authorizes the stock
dividend or distribution.
ARTICLE VII
Seal
----
The corporate seal shall be in such form as may be approved from time to
time by the Board. The seal may be used by causing it or a facsimile thereof,
to be impressed or affixed or in any other manner reproduced.
ARTICLE VII
Fiscal Year
-----------
Unless otherwise provided in the Certificate, the fiscal year of the
Corporation shall be fixed by resolution of the Board.
ARTICLE IX
Indemnification and Insurance
-----------------------------
SECTION IX.1 Indemnification.
---------------
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<PAGE>
(a) Third Party Actions. The Corporation shall indemnify any person
-------------------
who was or is a party or is threatened to be made a party (including,
without limitation as a witness) to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, including all appeals (other
than an action, suit or proceeding by or in the right of the Corporation)
by reason of the fact that such person is or was a director or officer of
the Corporation (and the Corporation, in the discretion of the Board, may
so indemnify a person by reason of the fact that such person is or was an
employee or agent of the Corporation or is or was serving at the request of
the Corporation in any other capacity for or on behalf of the Corporation),
against reasonable expenses (including attorneys' fees), judgments,
decrees, fines, penalties and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if, in the case of conduct in such person's official capacity
with the corporation, such person acted in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and in all other cases, such person acted in
good faith and was at least not opposed to the Corporation's best
interests, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful, except that
no indemnification shall be made in respect to any claim, issue or matter
as to which such person shall have been finally adjudged to be liable for
(i) negligence or misconduct in the performance of such person's duty to
the Corporation unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction,
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper, or (ii) violating any of the terms or provisions of
Section 16 of the Securities Exchange Act of 1934, as amended, or any of
the rules or regulations promulgated thereunder. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith or in a
manner which such person reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that such person's conduct
was unlawful. Notwithstanding the foregoing, the Corporation shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized by the Board or a committee thereof. No
indemnity shall be provided by the Corporation for expenses that have been
paid directly by an insurance carrier under a policy of directors' and
officers' liability insurance maintained by the Corporation.
(b) Actions By or in the Right of the Corporation. The Corporation
---------------------------------------------
shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action or suit,
including all appeals, by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that
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<PAGE>
such person is or was a director or officer of the Corporation (and the
Corporation, in the discretion of the Board, may so indemnify a person by
reason of the fact that such person is or was an employee or agent of the
Corporation or is or was serving at the request of the Corporation in any
other capacity for or on behalf of the Corporation), against expenses
(including attorneys' fees) actually and reasonably incurred by such person
in connection with the defense or settlement of such action or suit if, in
the case of conduct in such person's official capacity with the
corporation, such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the Corporation's best
interests, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful, except that
no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been finally adjudged to be liable for
(i) negligence or misconduct in the performance of such person's duty to
the Corporation unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction,
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper or (ii) violating any of the terms or provisions of
Section 16 of the Securities Exchange Act of 1934, as amended, or any of
the rules or regulations promulgated thereunder. Notwithstanding the
foregoing, the Corporation shall be required to indemnify an officer or
director in connection with an action, suit or proceeding initiated by such
person only if such action, suit or proceeding was authorized by the Board
or a committee thereof. No indemnity shall be provided by the Corporation
for expenses that have been paid directly by an insurance carrier under a
policy of directors' and officers' liability insurance maintained by the
Corporation.
(c) Indemnify if Successful or Partially Successful. To the extent
-----------------------------------------------
that a present or former director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this Section 9.1, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
If a director, officer, employee or agent of the Corporation is only
partially successful in the defense, investigation, settlement or appeal of
any action, suit or proceeding referred to in subsections (a) and (b) of
this Section 9.1, and as a result is not entitled to indemnification by the
Corporation for the total amount of the expenses (including attorneys'
fees), costs, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him, the Corporation shall nevertheless
provide indemnification to the extent such person has been partially
successful.
(d) Standard of Conduct. Except in a situation governed by
-------------------
subsection (c) of this Section 9.1, any indemnification under subsections
(a) and (b) of this Section 9.1
-16-
<PAGE>
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this Section 9.1. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or (4) by the stockholders, but shares owned by or
voted under the control of directors who are parties to the proceeding may
not be voted on determination. The determination required by clauses (1),
(2) and (3) of this subsection (d) may in either event be made by the
written consent of the majority required by each clause.
(e) Advancement of Expenses. Expenses (including attorneys' fees) of
-----------------------
each officer and directory hereunder indemnified actually and reasonably
incurred in defending any civil, criminal, administrative or investigative
action, suit or proceeding or threat thereof shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of (i) an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized
in the Article and (ii) a written affirmation of director's good faith
belief that such person has performed such person's duty to the
Corporation, upon request by the Corporation and if required under
applicable law. Such expenses (including attorneys' fees) incurred by
former directors and officers or other employees and agents may be so paid
upon the receipt of the aforesaid undertaking and such terms and
conditions, if any, as the Corporation deems appropriate.
(f) Nonexclusivity. The indemnification and advancement of expenses
--------------
provided by, or granted pursuant to, this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in such person's official capacity and as to action in another
capacity while holding such office.
SECTION IX.2 Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out
-17-
<PAGE>
of such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
the GCL.
SECTION IX.3 Definitions.
-----------
(a) For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article IX with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
(b) References to "other capacities" shall include serving as a
trustee or agent for any employee benefit plan; references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article IX.
(c) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(d) The right to indemnification conferred by this Article IX shall
be deemed to be a contract between the Corporation and each person referred
to herein until amended or repealed, but no amendment to or repeal of these
provisions shall apply to or have any effect on the right to
indemnification of any person with respect to any liability or alleged
liability of such person for or with respect to any act or omission of such
person occurring prior to such amendment or repeal.
-18-
<PAGE>
(e) A person shall be deemed to have acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe such person's
conduct was unlawful, if such person's action is based on the records or
books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or
records given or reports made to the Corporation or another enterprise by
an independent certified public accountant or by an appraiser or other
expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used herein shall mean any
other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which such person is or was serving at
the request of the Corporation as a director or executive officer. The
provisions of this subsection shall not be deemed to be exclusive or to
limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 9.1(a) or
Section 9.1(b) of this Article IX, as the case may be.
ARTICLE X
Section 203
-----------
The Corporation shall be governed by Section 203 of the GCL.
ARTICLE XI
Amendment
---------
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the Board, subject to the provisions of these Bylaws and the
Certificate. The fact that the power to amend, alter, repeal or adopt the
Bylaws has been conferred upon the Board shall not divest the stockholders of
the same powers. The stockholders may not adopt any provision contrary to the
provisions of these Bylaws or the Certificate without the affirmative vote of
two-thirds (2/3) of the holders of Voting Stock, voting together as a single
class. Any vote providing for amendment to these Bylaws or the Certificate must
be by written ballot.
-19-
<PAGE>
EXHIBIT 10.24
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
Dated as of September 4, 1998
by and between
NEW ENGLAND TELEPHONE & TELEGRAPH COMPANY, dba
BELL ATLANTIC - MASSACHUSETTS
and
COMMUNITY NETWORKS OF MASSACHUSETTS
<PAGE>
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
This Interconnection Agreement (this "Agreement"), under Sections 251
and 252 of the Telecommunications Act of 1996 (the "Act"), is effective as of
the 4th day of September, 1998 (the "Effective Date"), by and between New
England Telephone & Telegraph Company, Inc. d/b/a Bell Atlantic - Massachusetts
("BA"), a New York corporation with offices at 185 Franklin Street, Boston,
Massachusetts 02110, and Community Networks of Massachusetts ("Community"), a
Delaware corporation with offices at 45-18 Court Square, Suite 502, Long Island
City, New York 11101 (each a "Party" and, collectively, the "Parties").
WHEREAS, Community has requested that BA make available to Community
interconnection, service and unbundled network elements upon the same terms and
conditions as provided in the Interconnection Agreement (and amendments thereto)
between AT&T Communications of New England, Inc. ("AT&T") and BA, dated April
13, 1998, for Massachusetts, approved by the Massachusetts Department of
Telecommunications and Energy ("Department") on May 18, 1998 under Section 252
of the Act (the "Separate Agreement") and attached as Appendix 1 hereto; and
WHEREAS, BA has undertaken to make such terms and conditions available
to Community hereby only because and, to the extent required by, Section 252(i)
of the Act.
NOW, THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Community and BA hereby agree as follows:
1.0 Incorporation of Appendix by Reference
1.1 Except as expressly stated herein, the terms and conditions of
Appendix 1 hereto, with all Schedules and Exhibits thereto, are incorporated by
reference in their entirety herein and form an integral part of this Agreement.
1.2 References in Appendix 1 hereto to AT&T Communications of New
England, Inc., or to AT&T shall for purposes of this Agreement be deemed to
refer to Community.
1.3 References in Appendix 1 hereto to the "Effective Date", the date
of effectiveness thereof and like provisions shall for purposes of this
Agreement be deemed to refer to the date first written above. Unless terminated
earlier in accordance with the terms of Appendix 1 hereto, this Agreement shall
continue in effect until the Separate Agreement is terminated.
<PAGE>
1.4 All notices, affidavits, exemption-certificates or other
communications to Community related to tax matters shall be sent to the
following address:
Community Networks of Massachusetts
45-18 Court Square, Suite 502
Long Island City, New York 11101
Attn: Mr. T.J. Anderson
1.5 All notices, affidavits, exemption-certificates or other
communications to BA related to tax matters shall be sent to the following
address:
Tax Administration
Bell Atlantic Corporation
1095 Avenue of the Americas
Room 3109
New York, New York 10036
1.6 Notices to Community under General Terms and Conditions, Section
17, of Appendix 1 hereto shall be sent to the following address:
Community Networks of Massachusetts
45-18 Court Square, Suite 502
Long Island City, New York 11101
Attn: Mr. T.J. Anderson
Facsimile: (718) 706-9411
1.7 Notices to BA under General Terms and Conditions, Section 17, of
Appendix 1 hereto shall be sent to the following address:
Bell Atlantic Corporation
1095 Avenue of Americas
New York, NY 10036
Attn: President -Telecom Industry Services
Facsimile: (212) 597-2585
with a copy to:
Bell Atlantic Corporation
1095 Avenue of Americas
40th Floor
2
<PAGE>
New York, NY 10036
Attn: General Counsel
Facsimile: (212) 597-2560
2.0 Amendments and Clarifications
2.1 The Parties agree that if any judicial or regulatory authority of
competent jurisdiction determines (or has determined) that BA is not required to
furnish any service or item or provide any benefit to telecommunications
carriers otherwise required to be furnished or provided to Community hereunder,
then BA may, at its sole option, avail itself of any such determination by
providing written notice thereof to Community.
2.2 Notwithstanding anything to the contrary contained in this
Agreement, the Parties agree that BA shall only be required to provide
Combinations and any services related to its provision of Combinations to the
extent (a) required by Applicable Law or (b) mutually agreed to by the Parties
in writing after the date hereof.
2.3 For the avoidance of doubt, the Parties acknowledge and agree that
the term "Dedicated Transport", as described in Part II, Section 2.9.5.2 of
Appendix 1 hereto, does not include within its definition transmissions between
locations that include subscriber premises.
2.4 The reciprocal compensation provisions set forth in this Agreement
do not apply to Internet-bound traffic because such traffic is not local
traffic.
2.5 The entry into, filing and performance by BA of this Agreement does
not in any way constitute a waiver by BA of any of the rights and remedies it
may have to seek review of any of the provisions of the Separate Agreement, or
to petition the Department, other administrative body or court for
reconsideration or reversal of any determination made by any of them, or to seek
review in any way of any portion of this Agreement in connection with
Community's election under Section 252(i) of the Act.
3
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of this 4th day of September, 1998.
COMMUNITY NETWORKS BELL ATLANTIC
OF MASSACHUSETTS MASSACHUSETTS, INC.
By: By:
----------------------
Printed: Printed: Jacob J. Goldberg
----------------- -----------------
Title: Title: President, Telecom Industry Services
----------------- ------------------------------------
4
<PAGE>
AGREEMENT
between
New England Telephone and Telegraph Company
d/b/a BA
and
AT&T Communications of New England, Inc.
Dated as of April 13, 1998
<PAGE>
TABLE OF CONTENTS
(1) GENERAL TERMS AND CONDITIONS
(2) PART I - Telecommunications Services Provided for Resale
Appendix A
(3) PART II - Unbundled Network Elements and Combinations
Exhibit A - Bona Fide Request Process
Exhibit B - Timetable for Providing Elements
(4) PART III - Service Description: Ancillary Functions
Exhibit A -
Appendix A - Collocation Schedule
Appendix B - Application for Collocation
Appendix C - Insurance Certification
Appendix D - Grounding Requirements
Appendix E - Construction Work Completion Notice
(5) PART IV - Pricing Schedule
Exhibit A - Local and Toll Call Flows and Intercarrier Billing
in the Competitive Telecommunications Environment
Attachment A - Unbundled Network Elements
Attachment B - Call Flow Diagram
(6) Attachment 1 - Definitions
(7) Attachment 2 - Operations Plan and Implementation Team
(8) Attachment 3 - Intentionally Omitted
(9) Attachment 4 - Intentionally Omitted
(10) Attachment 5 - Intentionally Omitted
(11) Attachment 6 - Billing and Recording
<PAGE>
TABLE OF CONTENTS
General Terms and Conditions
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS..........................................................................................................1
DEFINITIONS.......................................................................................................2
GENERAL TERMS AND CONDITIONS......................................................................................2
1. Scope of the Agreement..........................................................................2
2. Term of Agreement; Termination..................................................................2
3. Transitional Support............................................................................4
4. Good Faith Performance..........................................................................4
5. Option to Obtain Local Services, Network Elements or .Combinations Under Other Agreements ......4
6. Responsibility of Each Party....................................................................5
7. Government Compliance...........................................................................5
8. Regulatory Matters..............................................................................6
9. Liability and Indemnity.........................................................................7
9.1 Indemnification........................................................................7
9.2 Limitation of Liability................................................................8
10. Payment Terms, Disputed Amounts and Audits......................................................8
10.1 Local Services.........................................................................8
10.2 Payment Terms - Other than Local Services..............................................9
10.3 Disputed Amounts - Other than Local Services..........................................10
10.4 Audits and Inspections................................................................13
10.5 Alternate Billing to Third Numbers....................................................14
10.6 Reciprocal Compensation...............................................................17
11. Service Standards..............................................................................19
12. OSS/Electronic Interfaces......................................................................19
13. Operations Plan and Implementation Team........................................................22
14. Force Majeure..................................................................................22
15. Certain State and Local Taxes..................................................................23
16. Dispute Resolution.............................................................................23
17. Notices........................................................................................27
18. Confidentiality................................................................................29
19. Number Portability.............................................................................30
19.1 Interim Number Portability............................................................30
19.2 Number Reassignment...................................................................33
20. Directory Listings and Directory Distributions.................................................33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
21. Subscriber List Information....................................................................35
22. Miscellaneous..................................................................................35
22.1 Delegation or Assignment..............................................................35
22.2 Nonexclusive Remedies.................................................................35
22.3 No Third Party Beneficiaries..........................................................36
22.4 Referenced Documents..................................................................36
22.5 Governing Law.........................................................................36
22.6 Publicity and Advertising.............................................................36
22.7 Amendments or Waivers.................................................................36
22.8 Severability..........................................................................37
22.9 Entire Agreement......................................................................37
22.10 Survival of Obligations...............................................................37
22.11 Executed in Counterparts..............................................................37
22.12 Headings of No Force or Effect........................................................37
22.13 Joint Work Product....................................................................38
22.14 Nonexclusive Dealings.................................................................38
22.15 No License............................................................................38
22.16 Dialing Parity........................................................................38
22.17 Disclaimer of Warranties..............................................................38
</TABLE>
iii
<PAGE>
INTERCONNECTION AGREEMENT
This Agreement, which shall become effective upon the date executed in
accordance with Section 2(a), is entered into by and between AT&T Communications
of New England, Inc., a Massachusetts corporation, having an office at 32 Avenue
of the Americas, New York, New York 10013 ("AT&T"), and New England Telephone
and Telegraph Company, d/b/a Bell Atlantic -Massachusetts, a New York
corporation, having an office at 185 Franklin Street, Boston, Massachusetts
02110 ("BA").
RECITALS
WHEREAS, the Telecommunications Act of 1996 (as amended or modified
from time to time, the "Act") was signed into law on February 8, 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Telecommunications Carriers; and
WHEREAS, the Federal Communications Commission (the "FCC") has issued
rules to implement the Act (including In the Matter of the Local Competition
Provisions in the Telecommunications Act of 1996, FCC 96-325 (hereinafter, as
amended, modified, stayed or reconsidered from time to time, the "Order"); and
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
AT&T will interconnect with the BA network in the BA service territory within
the Commonwealth of Massachusetts (the "MA Region") and BA will provide services
to AT&T as required by the Act and Order and additional services as set forth
herein; and
WHEREAS, the Parties have arrived at this Agreement through
negotiations and arbitration proceedings undertaken pursuant to the Act.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants of this Agreement and other good and valuable consideration, AT&T and
BA hereby agree as follows:
<PAGE>
DEFINITIONS
For purposes of this Agreement, certain terms have been defined in
Attachment 1 and elsewhere in this Agreement to encompass meanings that may
differ from, or be in addition to, the normal connotation of the defined word.
Unless the context clearly indicates otherwise, any term defined or used in the
singular shall include the plural. The words "shall" and "will" are used
interchangeably throughout the Agreement and the use of either connotes a
mandatory requirement. The use of one or the other shall not mean a different
degree of right or obligation for either Party. A defined word intended to
convey its special meaning is capitalized when used. Other terms that are
capitalized, and not defined in this Agreement, shall have the meaning in the
Act.
GENERAL TERMS AND CONDITIONS
1. Scope of the Agreement. This Agreement, together with all applicable tariffs
as referenced herein (as in effect from time to time except with respect to
those provisions in this Agreement in which it is expressly provided otherwise),
set forth the terms, conditions and prices to which BA and AT&T have agreed in
respect of the following: (a) Local Services, (b) certain unbundled network
elements, (hereinafter collectively referred to as "Network Elements") or
combinations of such Network Elements ("Combinations")*, (c) Collocation, (d)
Number Portability, (e) Access to Rights of Way, Ducts, Conduits and Pole
Attachments, (f) Directory Assistance and Operator Services and Directory
Listings, (g) Reciprocal Compensation, (h) E911 and 911 services, (i) Meet-Point
Billing, (j) Dialing Parity, (k) Transient Tandem Service, (1) Interconnection
of AT&T's network to BA's network and (m) Access to Telephone Numbers. This
Agreement includes the General Terms and Conditions, Parts I through IV, and
their Attachments and all accompanying Appendices and Exhibits. Unless otherwise
provided in this Agreement, the rights and obligations of the Parties hereunder
shall apply throughout the MA Region.
- ------------------------
* The Parties acknowledge and agree that the issue of BA's obligation to combine
unbundled Network Elements is presently before the Department in the
Consolidated Arbitrations D.P.U. 96-73, 96-74, 96-80/81, 96-83 and before the
U.S. Supreme Court. Accordingly, it is agreed that, pending a decision of either
the Department or the U.S. Supreme Court requiring BA to provide combinations of
unbundled Network Elements, BA has no obligation to combine unbundled Network
Elements. When the Department, the U.S. Supreme Court or any court of competent
jurisdiction issues a decision or order upon this issue, upon written request of
either Party, the Parties agree to meet and expeditiously negotiate in good
faith to arrive at modifications to this Agreement if necessary, to comply with
such decision. Notwithstanding the foregoing, nothing in this Agreement shall
prevent either Party from appealing or otherwise contesting the Department's or
any court's decisions or orders.
2
<PAGE>
2. Term of Agreement; Termination.
------------------------------
(a) The initial term of this Agreement shall commence on the date
on which this Agreement has been executed by both Parties (the
"Effective Date") and shall expire on April 12, 2001, except
as otherwise provided in Section 2(d) below.
(b) AT&T (i) shall, at BA's request, or (ii) may, at its option,
nine months prior to the expiration of the Term, with respect
to the entire Agreement, and/or eighteen months prior to the
expiration of the Term, in the case of the terms and
provisions with respect to Local Services set forth in Part I
hereof (such terms and provisions, other than with respect to
the wholesale discounts set forth in Part IV hereof,
hereinafter the "Resale Terms"), make a request to BA to
renegotiate all of the terms of this Agreement or the Resale
Terms pursuant to Section 251(c)(1) of the Act. The date(s) of
BA's receipt of such request(s) shall be hereinafter referred
to as the "Renegotiation Request Date". The Parties agree that
within sixty (60) days of such Renegotiation Request Date each
Party will provide to the other a written description of its
proposed changes to, and/or extension of, the terms of this
Agreement or the Resale Terms. The Parties shall enter into
negotiations on such proposed changes seventy-five (75) days
after such Renegotiation Request Date.
(c) In the event that, notwithstanding, the good faith efforts of
both Parties, they are unable to agree on terms and conditions
of a new agreement and/or new Resale Terms, then either Party
may, beginning 135 days after the Renegotiation Request Date,
file a petition for arbitration by the Department pursuant to
Section 252(b) of the Act.
(d) The terms and conditions of this Agreement shall only continue
in full force and effect until the Effective Date of the
Department's decision pursuant to any petition filed under
Section 2(c) above (the "Arbitration Decision") if AT&T
requests to renegotiate pursuant to Section 2(b) above;
provided, however, that the prices, and, where feasible, any
-------- -------
other terms and conditions of this Agreement shall be trued up
to conform with the Arbitration Decision back to the date of
expiration of the Term or, with respect to modification of
Resale Terms, back to the applicable Renegotiation Request
Date.
(e) Nothing in this Section 2 shall be construed as a waiver by
either Party of its right to appeal any decision of the
Department, including the Arbitration Decision.
(f) Upon termination or expiration of this Agreement in accordance
with this Section 2:
(i) each Party shall comply with its obligations set
forth in paragraph (c) of Section 18 of the General
Terms and Conditions of this Agreement;
(ii) each Party shall promptly pay all amounts (including
any late payment
3
<PAGE>
charges or cancellation charges, if any) owed under
this Agreement; and
(iii) each Party's obligations that by their terms continue
in force and effect after termination or expiration
of this Agreement (including, without limitation,
indemnification obligations) shall survive
termination or expiration of this Agreement.
3. Transitional Support. Upon the termination or expiration of this Agreement,
AT&T may itself provide or retain another vendor to provide Local Services,
Network Elements, Combinations or other access or services comparable to those
furnished under the terms of this Agreement. BA agrees to cooperate with AT&T
and to use commercially reasonable efforts to effect an orderly and efficient
transition to AT&T or AT&T's new vendor, subject to the payment by AT&T to BA of
the reasonable costs incurred in providing such cooperation.
4. Good Faith Performance. In the performance of their obligations under this
Agreement, the Parties shall act in good faith and consistently with the
provisions of the Act and the applicable effective provisions of the Order.
Except to the extent a different standard is expressly set forth in this
Agreement, in which case such other standard shall apply, where notice, approval
or similar action by a Party is permitted or required by any provision of this
Agreement, (including, without limitation, the obligation of the Parties to
further negotiate the resolution of new or open issues under this Agreement)
such notice, approval or similar action shall not be unreasonably delayed or
withheld.
5. Option to Obtain Local Services, Network Elements or
Combinations Under Other Agreements.
-----------------------------------
(a) If BA enters into an agreement approved by the Department or
the FCC pursuant to Section 252 of the Act which provides for
the provision in the Commonwealth of Massachusetts of services
covered in this Agreement to another requesting
Telecommunications Carrier (the "Other Agreement"), BA shall
make available to AT&T upon request such Other Agreement to
the extent required by Section 252(i) of the Act.
If AT&T enters into an agreement with a Telecommunications
Carrier approved by the Department or the FCC pursuant to
Section 252 of the Act with respect to services in the
Commonwealth of Massachusetts (the "Other AT&T Agreement"),
then AT&T shall make available to BA upon request such Other
AT&T Agreement to the extent required by Section 252(i) of the
Act.
(b) Notwithstanding the terms and provisions of paragraph (a) of
this Section 5, in the event that as a result of any decision,
order or determination of any judicial or regulatory
authority, it is determined that all or any portion of such
paragraph (a) above is found invalid or unenforceable, or if
such decision, order or determination
4
<PAGE>
interprets Section 252 (i) to require BA to offer
Telecommunications Carriers the right to select less than the
entire Other Agreement, the Parties agree to abide by such
decision, order or determination and to amend paragraph (a) of
this Section 5 to the extent that it conflicts with such
decision, order or determination.
6. Responsibility of Each Party. Each Party has and hereby retains the right to
exercise full control of and supervision over its own performance of its
obligations under this Agreement, and retains full control over the employment,
direction, compensation and discharge of all employees assisting in the
performance of such obligations. Each Party will be solely responsible for all
matters relating to payment of such employees, including compliance with social
security taxes, withholding taxes and all other regulations governing such
matters. Subject to the limitations on liability set forth in Section 9 of the
General Terms and Conditions of this Agreement and except as otherwise expressly
provided in this Agreement, each Party shall be responsible for (i) its own acts
and performance of all obligations imposed by all applicable federal, state or
local statutes, laws, rules, regulations, codes, orders, decisions, injunctions,
judgments, awards and decrees (collectively, "Applicable Laws") in connection
with its activities, legal status and property, real or personal, and (ii) the
acts of its own affiliates, employees, agents and contractors during the
performance of that Party's obligations hereunder. Neither this Agreement, nor
any actions taken by BA or AT&T in compliance with this Agreement, shall be
deemed to create an agency, joint venture, or other relationship between AT&T
and BA of any kind, other than that of purchaser and seller of services. Neither
this Agreement, nor any actions taken by BA or AT&T in compliance with this
Agreement, shall create a contractual, agency, or any other type of relationship
or third party liability between BA and AT&T`s end users or others.
7. Government Compliance.
---------------------
7.1 The provisions of this Agreement are subject in their entirety
to the applicable provisions of the Act and any other orders,
restrictions and requirements of governmental and regulatory
authorities with competent jurisdiction over the subject
matter thereof and, in the event of any direct conflict
between the provisions of this Agreement and the requirements
of such governmental and regulatory authorities, the
requirements of such authorities shall prevail.
7.2 BA represents and AT&T acknowledges that BA is entering into
this Agreement specifically in order to satisfy the
obligations of BA as set forth in the Act and the Order.
7.3 In the event that any legislative, regulatory, judicial or
other legal action materially affects any material terms of
this Agreement or the rights or obligations of either AT&T or
BA hereunder or the ability of AT&T or BA to perform any
material provision hereof, the Parties shall renegotiate in
good faith such affected provisions with a view toward
agreeing to acceptable new terms as may be required or
permitted as a result of such legislative, regulatory,
judicial or other legal action.
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7.4 Notwithstanding anything herein to the contrary, in the event
that as a result of any decision, order or determination of
any judicial or regulatory authority with jurisdiction over
the subject matter hereof, it is determined that BA shall not
be required to furnish any service or item or provide any
benefit required to be furnished or provided to AT&T
hereunder, then AT&T and BA shall promptly commence and
conduct negotiations in good faith with a view toward agreeing
to mutually acceptable new terms as may be required or
permitted as a result of such decision, order or
determination; provided, however, that BA expressly reserves
all rights it may have to discontinue any such service or item
or benefit provided under this Agreement to the extent
permitted by any such decision, order or determination and
AT&T expressly reserves all rights it may have to oppose any
such discontinuance by BA.
7.5 The Parties hereby agree that where a clause from the
Interconnection Agreement between AT&T Communications of New
York, Inc. and New York Telephone Company (the "NY Agreement")
submitted to the New York Public Service Commission (the "NY
PSC") has been incorporated in this Agreement and such clause
or provision is subsequently amended in the NY Agreement to
conform to an effective order of a governmental agency or
court of competent jurisdiction resulting from an appeal of a
NY PSC Order in Cases No. 96-C-0723 and No. 96-C-0724, such
clause or provision shall be simultaneously amended in this
Agreement to conform with any such amendments to the NY
Agreement.
8. Regulatory Matters.
------------------
8.1 Each Party shall reasonably cooperate with the other in
obtaining and maintaining any required regulatory approvals
for which the Party is responsible in connection with the
performance of its obligations under this Agreement.
8.2 The Parties understand and agree that this Agreement will be
filed with the Department and may thereafter be filed with the
FCC. The Parties covenant and agree that this Agreement
satisfies the requirements of an agreement under Section 251
of the Act. Each Party covenants and agrees to fully support
approval of this Agreement by the Department or the FCC under
Section 252 of the Act without modification, subject to the
rights of the Parties to appeal or challenge arbitrated
provisions or arbitration decisions. The Parties also reserve
the right to seek regulatory relief and otherwise seek redress
from each other regarding performance and implementation of
this Agreement. In the event the Department, FCC or any court
rejects this Agreement in whole or in part, the Parties agree
to meet and negotiate in good faith to arrive at a mutually
acceptable modification of the rejected portion(s). If such
new terms are not renegotiated within 30 days after such
rejection, the dispute shall be referred to the Dispute
Resolution process set forth in Section 16 of the General
Terms and Conditions of this Agreement.
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9. Liability and Indemnity.
-----------------------
9.1 Indemnification.
---------------
(a) With respect to all matters under this Agreement
other than Local Services (which shall be governed by
the provisions of Appendix A to Part I of this
Agreement), to the extent not prohibited by any
Applicable Law, each Party (the "Indemnifying Party")
shall indemnify and hold harmless the other Party
("Indemnified Party") from and against loss, cost,
claim, liability, damage, and expense (including
reasonable attorney's fees) to third parties for:
(i) damage to tangible personal property or for
personal injury proximately caused by the
negligence or willful misconduct of the
Indemnifying Party, its employees, agents or
contractors; and
(ii) claims for libel, slander, infringement of
copyright arising from the material
transmitted over the Indemnified Party's
facilities arising from the Indemnifying
Party's own communications or the
communications of such Indemnifying Party's
Customers; and
(iii) claims for infringement of patents arising
from combining the Indemnified Party's
facilities or services with, or the using of
the Indemnified Party's services or
facilities in connection with, facilities of
the Indemnifying Party.
(b) The Indemnified Party will notify the Indemnifying
Party promptly in writing of any claims, lawsuits, or
demands by third parties for which the Indemnified
Party alleges that the Indemnifying Party is
responsible under this Section, and, if requested by
the Indemnifying Party, will tender the defense of
such claim, lawsuit or demand. In the event the
Indemnifying Party does not promptly assume or
diligently pursue the defense of the tendered action,
then the Indemnified Party may proceed to defend or
settle said action and the Indemnifying Party shall
hold harmless the Indemnified Party from any loss,
cost, liability, damage and expense. In the event the
Party otherwise entitled to indemnification from the
other elects to decline such indemnification, then
the Party making such an election may, at its own
expense, assume defense and settlement of the claim,
lawsuit or demand. The Parties will cooperate in
every reasonable manner with the defense or
settlement of any claim, demand, or lawsuit.
9.2 Limitation of Liability.
-----------------------
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(a) Except as otherwise provided in Section 9.1 of the
General Terms and Conditions of this Agreement, no
liability shall attach to either Party, its parents,
subsidiaries, affiliates, agents, servants or
employees for any cost, expense, claim, liability,
damage, expense or other Loss in the absence of gross
negligence or willful misconduct.
(b) Except as otherwise expressly provided in Section 9.1
of the General Terms and Conditions of this
Agreement, no Party shall be liable to the other
Party for any cost, expense, claim, liability,
damage, expense or other Loss caused by the conduct
of the other Party, the other Party's agents,
servants, contractors or others acting in aid or
concert with the other Party.
(c) In no event shall either Party have any liability
whatsoever to the other Party for any indirect,
special, consequential, incidental or punitive
damages, including, but not limited to loss of
anticipated profits or revenue or other economic loss
in connection with or arising from anything said,
omitted or done hereunder (collectively,
"Consequential Damages"), even if the other Party has
been advised of the possibility of such damages.
(d) Except as otherwise provided in Section 9.1 of the
General Terms and Conditions, each Party's liability
to the other Party for any Loss relating to or
arising out of any negligent act or omission in its
performance of this Agreement, whether in contract or
in tort, shall be limited to the amount that is or
would have been charged to the other Party by such
negligent or breaching Party for the specific
service(s) or function(s) not performed or improperly
performed, and only for the period of time such
service or function was not performed or improperly
performed.
(e) Nothing in this Section 9.2 shall excuse the payment
of any award of collocation remedies made pursuant to
Section 2.2.20.2 of Part III hereof or any remedy
provided pursuant to Section 11 of the General Terms
and Conditions of this Agreement.
10. Payment Terms, Disputed Amounts and Audits.
------------------------------------------
10.1 Local Services.
--------------
All payments, disputes in regard to payments and (except as
provided in 10.4 below) audits for Local Services (if any)
shall be on the terms and conditions set forth in Appendix A
to Part I of this Agreement. All bills for Local Services
provided to one Party by the other are due within thirty-one
(31) calendar days of the bill day (payment date) unless the
billed Party is able to establish that the bill was not timely
received (i.e., at least 20 days prior to the payment date),
in which case the payment
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<PAGE>
date shall be twenty (20) calendar days from the receipt of
the bill. The Parties agree that Local Services wholesale
bills will be rendered and received electronically. The above
provisions shall be in addition to the terms and conditions of
Appendix A to Part I of this Agreement and shall be
interpreted as not in conflict therewith.
10.2 Payment Terms - Other than Local Services.
-----------------------------------------
This Section 10.2 does not apply to Local Services. Except for
alternately billed calls and meet-point billed calls, each
Party shall bill on a current basis all charges incurred by
and credits due to the other Party under this Agreement
attributable to services established, discontinued or
performed during the preceding billing period. In addition,
either Party may bill in advance charges for all services to
be provided during the ensuing billing period except for
charges associated with measured service usage which will be
billed in arrears. The bill day (i.e., the billing date of a
bill for a Party for services under this Agreement), the
period of service each bill covers, and the payment date will
be as follows:
(a) Each Party will establish a bill day each month for
the other Party's account. If payment is not received
by the payment date, as set forth in (b) following,
in immediately available funds, a late payment
penalty will apply as set forth in (b) following.
(b) All bills dated as set forth in (a) preceding for
service provided to one Party by the other are due
within thirty-one (31) calendar days (payment date)
unless the billed Party is able to establish that the
bill was not timely received (i.e., at least 20 days
----
prior to the payment date), in which case the payment
date shall be twenty (20) calendar days from the
receipt of the bill. All bills are payable in
immediately available funds. If such payment date
would cause payment to be due on a Saturday, Sunday
or Legal Holiday, payment for such bills will be due
from the billed Party as follows:
(i) If such payment date falls on a Sunday or on
a Legal Holiday which is observed on a
Monday, the payment date shall be the first
non-holiday day following such Sunday or
Legal Holiday.
(ii) If such payment date falls on a Saturday or
on a Legal Holiday which is observed on
Tuesday, Wednesday, Thursday or Friday, the
payment date shall be the last non-holiday
day preceding such Saturday or Legal
Holiday.
(iii) Further, if any portion of the payment is
received by the billing Party after the
payment date, or if any portion of the
payment is received by the billing Party in
funds which are not immediately available to
the
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billing Party, then a late penalty shall be
due to the billing Party. The late payment
penalty shall be the portion of the payment
not received by the payment date or not
immediately available times a late factor.
The late factor shall be the lesser of:
(x) The highest interest rate (in
decimal value) which may be allowed
by law for commercial transactions,
for the number of days from the
payment date to and including the
date that the billed Party, actually
makes the payment to the billing
Party, or
(y) 0.0005 per day, simple interest, for
the. number of days from the payment
date to and including the date that
the billed Party actually makes the
payment to the billing Party.
10.3 Disputed Amounts -Other than Local Services.
-------------------------------------------
Except with respect to Local Services, in the event that a
billing dispute occurs concerning any charges billed to the
billed Party by the billing Party the following provisions
will apply.
(a) The first day of the dispute shall be the date on
which the billed Party furnishes in writing the
billing Party with the account number under which the
bill has been rendered, the date of the bill and the
specific items on the bill being disputed.
(b) If the Parties are unable to resolve the issues
related to the disputed amounts in the normal course
of business within ninety (90) days after delivery to
the billing Party of notice of the disputed amounts,
each of the Parties shall appoint a designated
representative who has authority to settle the
dispute and who is at a higher level of management
than the persons with direct responsibility for
administration of this Agreement. The designated
representatives shall meet as often as they
reasonably deem necessary in order to discuss the
dispute and negotiate in good faith in an effort to
resolve such dispute. The specific format for such
discussions will be left to the discretion of the
designated representatives, however all reasonable
requests for relevant information made by one Party
to the other Party shall be honored.
(c) If the Parties are unable to resolve issues related
to the disputed amounts within forty-five (45) days
after the Parties' appointment of designated
representatives pursuant to paragraph (b) above, then
the matter shall be decided pursuant to Section 16 of
the General Terms and Conditions of this Agreement.
10
<PAGE>
(d) The Parties agree that all negotiations pursuant to
this Section 10.3 with respect to disputed amounts
shall remain confidential and shall be treated as
compromise and settlement negotiations for purposes
of the Federal Rules of Evidence and state rules of
evidence.
(e) If a billing dispute is resolved in favor of the
billing Party, any payments withheld pending
resolution of the dispute shall be subject to the
late payment penalty as set forth in paragraph 10.2
(b)(iii) above. Further, the billed Party will not
receive a disputed amount penalty credit and/or a
late payment penalty credit.
(f) If a billed Party disputes a bill within three months
of the payment date and pays the total billed amount
on or before the payment date, and the billing
dispute is resolved in favor of the billed Party, the
billed Party will receive a credit for a disputed
amount penalty from the billing Party for the period
starting with the date of payment and ending on the
date of resolution. The credit for a disputed amount
penalty shall be the following:
The disputed amount penalty shall be calculated by
multiplying that portion of the disputed amount paid
and resolved in the billed Party's favor times the
lesser of:
(i) The highest interest rate (in decimal value)
which may be allowed by law for commercial
transactions, for the number of days from
the first date to and including the last
date of the period involved, or
(ii)) 0.0005 per day for the number of days from
the first date to and including the last
date of the period involved.
(g) If the billed Party disputes a bill within three
months of the payment date and pays the total billed
amount after the payment date and the billing dispute
is resolved in favor of the billed Party, the billed
Party will receive a credit for a disputed amount
penalty from the billing Party for the period
starting with the date of payment and ending on the
date of resolution. The credit for a disputed amount
penalty shall be as set forth following. In addition,
the late payment penalty applied to the disputed
amount resolved in the billed Party's favor as set
forth in paragraph 10.2(b)(iii) preceding will be
credited.
(h) If the billed Party disputes a bill within three
months of the payment date and does not pay the
disputed amount or does not pay the billed amount
(i.e., the non-disputed and disputed amount), and the
billing dispute is resolved in favor of the billed
Party, the billed Party will not receive a credit for
a
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<PAGE>
disputed amount penalty from the billing Party. The
late payment penalty applied to the disputed amount
resolved in the billing Party's favor as set forth in
paragraph 10.2(b)(iii) preceding will not be
credited.
(i) If a billed Party disputes a bill after three months
from the payment date and pays the total billed
amount on or before the dispute date or after the
dispute date but prior to the date of resolution, and
the billing dispute is resolved in favor of the
billed Party, the billed Party will receive a credit
for a disputed amount penalty from the billing Party
for the period starting with the date of dispute (if
the payment was received before or on the dispute
date) or the date of payment (if the payment was
received after the dispute date) and ending on the
date of resolution., The credit for a disputed amount
penalty shall be as set forth following. The billed
Party will not receive a credit for the late payment
penalty applied to the disputed amount resolved in
the billed Party's favor if the payment was received
on or before the dispute date. If the payment was
received after the dispute date but prior to the date
of resolution, the billed Party will receive a credit
for a late payment penalty applied to the disputed
amount resolved in the billed Party's favor times a
late payment penalty factor for the period starting
with the date of dispute and ending on the date of
payment. The penalty factor shall be as set forth in
paragraph 10.2(b)(iii) preceding.
(j) If the billed Party disputes a bill after three
months from the payment date and does not pay the
disputed amount or does not pay the billed amount
(i.e., the non-disputed amount and disputed amount)
and the billing dispute is resolved in favor of the
billed Party, the billed Party will not receive a
credit for a disputed amount penalty from the billing
Party. The billed Party will receive a credit for the
late payment penalty applied to the disputed amount
resolved in the billed Party's favor times a late
payment penalty factor for the period starting with
the date of dispute and ending on the date of
resolution. The penalty factor shall be as set forth
in paragraph 10.2(b)(iii) preceding.
(k) Adjustments for the quantities of services
established or discontinued in any billing period
will be prorated to the number of days or major
fraction of days based on a thirty (30) day month.
The billing Party will, upon request and if
available, furnish to the billed Party such detailed
information as may reasonably be required for
verification of any bill.
(l) When a rate as set forth in this Agreement is shown
to more than two decimal places, the charges will be
determined using the rate shown. The resulting amount
will then be rounded to the nearest penny (i.e.,
rounded to two decimal places).
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<PAGE>
(m) The Parties agree to establish a process by which
closure of a specific billing period will occur by
joint agreement. The purpose of a closure process is
for the Parties to jointly agree to close a billing
period to all further analysis and billing
transactions. Closure documentation at a minimum
should consist of a mutually developed agreement
outlining the process, a sign-off document to
formalize the closure of a specific period, and
documented specific issues which would be exempt from
closure. The intent of a closure process is for the
Parties to agree that except for exempted issues, all
billing and financial adjustments have been processed
and rendered for a specific bill period. The Parties
agree to a bill closure process which will be
established within twelve (12) months of the
Effective Date of this Agreement.
10.4 Audits and Inspections.
----------------------
(a) Subject to the terms and conditions of this Section
10.4, the restrictions set forth in Section 18 of the
General Terms and Conditions and the reasonable
security requirements of each Party and except as may
be otherwise specifically provided in this Agreement,
each Party (the "Auditing Party") may audit the other
Party's (the "Audited Party") books, records and
other documents which relate solely to the Parties'
billing to the other Party under this Agreement
(other than in connection with Local Services, with
respect to which no such audit right shall be
available except to the extent BA develops an audit
of the bill certification process pursuant to an
industry collaborative process, in which event such
audit rights shall be governed by such developed
process and not by this Agreement) once each year at
the conclusion of each calendar year, in order to
evaluate the accuracy of such other Party's billing
and invoicing. The Parties may employ other persons
or firms for this purpose. Such audit shall take
place at a time and place agreed to by the Parties no
later than thirty (30) days after notice thereof to
such other Party.
(b) Each Audited Party shall promptly correct any billing
error that is revealed in an audit, including
reimbursing any overpayment in the form of a credit
to the Auditing Party on the invoice for the first
full billing cycle after the Parties have agreed upon
the accuracy of the audit results. Any disputes
concerning audit results shall be resolved pursuant
to the procedures described in Section 16 of the
General Terms and Conditions of this Agreement.
(c) Each Audited Party shall cooperate fully in any such
audit, providing reasonable access to any and all
appropriate employees and relevant books, records and
other documents reasonably necessary to assess the
accuracy of its bills.
(d) Each Auditing Party may perform a single additional
audit of the Audited
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Party's relevant books, records and documents during
any calendar year if the previous audit uncovered
uncorrected net variances or errors in invoices in
favor of the Audited Party having an aggregate value
(except for Local Services purchases) of not less
than two percent (2%) of the total amount payable by
the Auditing Party during the period covered by the
audit.
(e) All audits shall be conducted at the sole cost and
expense of the Auditing Party.
(f) Upon (i) the discovery by either Party of overcharges
not previously reimbursed to the other Party or
underpayments by a Party or (ii) the resolution of
disputed audits, each Party shall promptly reimburse
or pay to the Party entitled thereto the amount of
any overpayment or underpayment, together with
interest thereon at a rate per month equal to the
lesser of 1.5% or the maximum permitted legal rate of
interest for the number of days from the date such
Party received such overpayment or, in the case of an
underpayment, should have received such payment
through but excluding the date such reimbursement or
payment is made. In no event, however, shall interest
be assessed on any previously assessed or accrued
late payment charges.
10.5 Alternate Billing to Third Numbers.
----------------------------------
10.5.1 Calls on BA resold Lines using BA's Operator
Services. The following procedures shall apply for
Alternately Billed Calls which are local calls or
IntraLATA toll calls carried by BA and originating or
terminating over a BA line (x) which has been resold
by AT&T pursuant to the terms of Part I of this
Agreement and (y) for which BA is providing operator
and directory assistance services:
10.5.1.1 AT&T Originating Call charged to
Customer Served by a BA Line. In the
case of a call which originates from
an AT&T Customer being served by a
resold line in the BA territory
within Massachusetts (hereinafter
"AT&T Customer Resold Line") which
is charged to a retail Customer
served by a BA line including a
resold line in BA territory within
Massachusetts (hereinafter "BA
Massachusetts Territory"), BA shall
record and process such call, and
transmit to AT&T an unrated call
record. AT&T shall rate such call
for purposes of charging the retail
Customer and send such rated record
to BA or a resale carrier designated
by BA in billable form for billing
and collection purposes, at which
point AT&T shall have no further
responsibility for billing or
collecting for such
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<PAGE>
call for BA retail Customers. BA,
for BA retail Customers only, shall
pay AT&T for such call the billed
amount less the billing and
collection fee specified in Part IV.
AT&T shall pay BA for the call at
the wholesale discount rate set
forth in Part IV as billed on the
wholesale bill.
10.5.1.2 BA Originating Call charged to AT&T
Customer. In the case of a call
which originates from a BA retail
Customer within Massachusetts and is
charged to an AT&T Customer Resold
Line, BA shall record and process
such call and rate such call for
purposes of charging AT&T's
Customer. BA shall send such rated
record to AT&T in billable form for
billing and collection purposes, at
which point BA shall have no further
responsibility for billing or
collecting for such call. AT&T shall
pay BA for such call the billed
amount less the billing and
collection fee specified in Part IV.
10.5.1.3 AT&T Originating Call charged to
Other Carrier. In the case of a call
which originates from an AT&T
Customer Resold Line which is
charged to a customer of a third
party Telecommunications Carrier
outside BA Massachusetts Territory,
BA shall record and process such
call and transmit to AT&T an unrated
call record, at which point BA shall
have no further responsibility for
rating, billing, or collecting for
such call. AT&T shall pay BA for
such call at the wholesale discount
rate set forth in Part IV as billed
on the wholesale bill.
10.5.2 Calls on BA Resold Lines Using AT&T's Operator Services. The
following procedures shall apply for Alternately Billed Calls
which are local calls or IntraLATA toll calls carried by BA
and originating or terminating over a BA line (x) which has
been resold by AT&T pursuant to the terms of Part I of this
Agreement and (y) for which BA is not providing operator and
directory assistance services:
10.5.2.1 AT&T Originating Call charged to BA
Customer. In the case of a call
which originates from an AT&T
Customer Resold Line and is charged
to a BA retail Customer within BA
Massachusetts Territory, AT&T shall
record and process such call at its
OSPS and rate such call for purposes
of charging BA's Customer and send
such rated record to BA in billable
form for billing and collection
purposes, at which point AT&T shall
have no further responsibility for
billing or collecting for such call.
BA shall pay AT&T for such call the
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<PAGE>
billed amount less the billing and
collection fee specified in Part IV.
AT&T shall pay charges for
Customized Routing in accordance
with Part IV, Section B. XIII of
this Agreement. Appropriate
Reciprocal Compensation charges for
terminating to a BA line will apply
pursuant to Section 10.6 of this
Agreement.
10.5.2.2 BA Originating Call charged to AT&T
Customer. In the case of a call
which originates from a BA retail
Customer within Massachusetts and is
charged to an AT&T Customer Resold
Line, BA shall record and process
such call and rate such call for
purposes of charging AT&T's
Customer. BA shall send such rated
record to AT&T in billable form for
billing and collection purposes, at
which point BA shall have no further
responsibility for billing or
collecting for such call. AT&T shall
pay BA for such call the billed
amount less the billing and
collection fee specified in Part IV.
10.5.2.3 AT&T Originating Call charged to
Other Carrier. In the case of a call
which originates from an AT&T
Customer Resold Line which is
charged to a customer of a third
party Telecommunications Carrier
providing services outside BA
Massachusetts Territory, AT&T shall
record and process such call. AT&T
shall pay charges for Customized
Routing in accordance with Part IV,
Section B. XIII of this Agreement.
Appropriate Reciprocal Compensation
charges for terminating to a BA line
will apply pursuant to Section 10.6
of this Agreement.
10.5.3 Calls Billed to BA Resold Lines and Carried through
CMDS and CATS. The following procedures shall apply
for Alternately Billed Calls which are local calls or
IntraLATA toll calls billed through the Centralized
Message Distribution System ("CMDS") and originating
or terminating over a third company's line and
charged to a BA line which has been resold by AT&T
pursuant to the terms of Part I of this Agreement.
10.5.3.1 Calls Carried through CMDS and CATS.
In the case of a call which
originates and terminates outside BA
Massachusetts Territory and is
charged to an AT&T Customer Resold
Line, BA shall provide to AT&T the
information and charges with respect
to such call received from the
out-of-region Telecommunications
Carrier via the daily usage feed. BA
shall have no further responsibility
for rating, billing and
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collecting for such call. AT&T shall
pay BA for such call an amount equal
to the amount charged to BA through
the CATS settlement process by such
out-of-region Telecommunications
Carrier with respect to such call as
billed on the wholesale bill and a
Call Usage Detail Service charge in
accordance with Part IV, Section B,
XI. B1 of this Agreement.
10.5.4 Administrative Matters. All other matters relating to
the rating, billing, payment and transmission of
records with respect to Alternately Billed Calls
which are not set forth above, including, without
limitation, the timing of payments and billings, the
frequency of transmission of records and the
eligibility of messages for billing, shall be
governed by the other applicable provisions of this
Agreement or, to the extent not so provided, by the
Joint Operations Plan.
10.5.5 Other Alternate Billed Calls. A BA territory
intraregion Alternate Billed Call clearinghouse will
be used for settling Alternately Billed Calls for
facility-based and unbundled Network Element purposes
and, to the extent it can be implemented, for calls
originating or charged to an AT&T Customer Resold
Line (including BA lines resold by third party
carriers within Massachusetts).
10.6 Reciprocal Compensation.
-----------------------
(a) Reciprocal Compensation only applies to the transport
and termination of Reciprocal Compensation Traffic.
(b) The Parties shall compensate each other for transport
and termination of Reciprocal Compensation Traffic,
based on actual usage, at the rates set forth in Part
IV hereof.
(c) The Reciprocal Compensation arrangements set forth in
this Agreement are not applicable to interLATA calls,
intraLATA toll calls or to intraLATA calls originated
on a third-party carrier's network on a 1 +
presubscribed basis or a casual dialed (10XXX or
101XXXX) basis. All such calls shall continue to be
governed by the terms and conditions of the
applicable federal and state tariffs.
(d) When either Party delivers seven (7) or ten (10)
digit translated intraLATA 800/888 service to the
other Party for termination, where the originating
Party uses its own switch (i.e., not utilizing
unbundled switching from the terminating Party), the
originating Party shall provide the terminating Party
with customer billing records in industry standard
format (EMR) if required by the terminating Party.
Where the originating Party utilizes unbundled
17
<PAGE>
switching from the terminating Party, the Party with
recording capability will provide such records. Where
the originating Party uses its own switch (not
utilizing unbundled switching) to originate the call,
the originating Party may bill the terminating Party
for the delivery of the traffic at Reciprocal
Compensation rates. The terminating Party may not
bill the originating Party for Reciprocal
Compensation under this Agreement, except where the
originating Party fails to provide the terminating
Party with useable EMR records in a timely manner.
The originating Party shall bear the entire cost of
any systems development and production of such
records; provided that the terminating Party that is
providing the 800/888 service shall pay for each
record provided by the originating Party at the
reciprocal record exchange rate set forth in Part IV
hereof. If the originating Party performs the 800
database query for the terminating Party, the
originating Party may charge the terminating Party
for such a query at the rate set forth in Part IV
hereof.
(e) Each Party shall charge the other Party its effective
applicable tariffed IntraLATA switched access rates
for the transport and termination of all IntraLATA
Toll Traffic.
(f) The rates for termination of Reciprocal Compensation
Traffic are set forth in Part IV.
110 Service Standards.
-----------------
The Parties hereby agree that the performance standards and
remedies approved by the Department in the Consolidated Arbitrations, D.P.U.
96-73/74, 96-75, 96-80/81, 96-83 and 96-94, shall be incorporated by reference
into this Agreement and shall govern the provision of services hereunder, as
applicable.
120 OSS/Electronic Interfaces.
-------------------------
(a) Each BA service order completion (with the exception of
complete account conversions processed through the BA Service
Order Processor ("SOP") system, e.g., complex services or
accounts of 10 lines or greater) shall contain all working
telephone numbers ("WTNs") that were processed on the service
order. Should BA develop the capability of providing WTNs on
orders completed through the SOP system for itself during the
Term of this Agreement, BA will make such capability for
SOP-processed orders available to AT&T. The Parties mutually
agree to continue discussions regarding the feasibility,
timeframes and cost to implement such SOP capabilities for
AT&T Customers.
(b) Migration as Specified.
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(i) With respect to Local Services customers, AT&T may
submit service orders for agreed upon service types
for BA end users who convert their existing local
exchange service to services resold by AT&T by
submitting a service order which indicates the
desired service configuration for each end user line
being converted. By submitting such service orders,
AT&T directs BA to remove all services except for
those delineated below and to connect only those
services stated on the service order without
disconnecting the line. At this time, BA will not
support this migration-as-specified service order
process for partial acquisitions (i.e. those end user
accounts for which AT&T seeks to convert some, but
not all, of the end user lines associated with a
single Billed Telephone Number). BA agrees that BA
will explore the possibility of performing
migration-as-specified service order processing for
partial migrations in the future. BA shall convert
such end user line retaining the end user's existing
telephone number (except as otherwise provided in
Part I(E)), directory listing information, appearance
in the E911 database, disability designations,
demarcation information, and voluntary blocking
selection. BA shall provision such resold line only
with the existing abovereferenced line
characteristics and the service configuration
provided by AT&T in the service order.
(ii) [Intentionally omitted]
(iii) If the service order is incomplete, insufficient,
incorrect, or contains conflicting information such
that BA is not able to process the order, BA may
reject such service order. Any such rejection shall
not be considered in any manner in measuring or
calculating BA's service performance or satisfying
any measurements. Notwithstanding anything to the
contrary set forth in this Agreement, (x) in the
absence of gross negligence or willful misconduct, BA
shall have no liability to AT&T, any AT&T customer,
or any other third party as a result of or otherwise
in connection with the rejection of any
migration-as-specified service order; and (y) AT&T
shall indemnify BA and hold BA harmless from and
against any and all claims, losses, liabilities and
damages to third parties incurred by BA by reason of
such incomplete, insufficient, incorrect or otherwise
erroneous migration-as-specified service order.
(iv) BA shall develop this new service order capability
and have it in service to handle a commercially
reasonable volume of service orders by March 1, 1998
for Local Services. The Parties shall mutually agree
to the expansion of this service order capability to
additional service types.
(v) Appropriate OSS charges as set forth in Part IV shall
apply. Additionally, AT&T shall pay BA its
apportioned share of reasonable direct development
costs, to the extent not previously recovered from
AT&T, for migration-as
19
<PAGE>
specified capability (collectively,
"Migration-as-Specified Costs"). Prior to incurring
such Migration-as Specified Costs, BA shall submit a
good faith estimate of such development costs to
AT&T. AT&T shall notify BA within ten (10) business
days from receipt of such estimate as to whether or
not BA should proceed with the development of
migration-as-specified capability for Local Services.
If AT&T notifies BA to proceed, BA shall continue to
develop such capability and AT&T shall be obligated,
as stated herein, to pay BA its development costs.
Subsequent to the implementation of migration-as
specified capability by BA, the parties agree that BA
will calculate Migration-as-Specified Costs and
submit such costs to AT&T. If AT&T disputes such
costs, such dispute shall be submitted pursuant to
Section 16 of the General Terms and Conditions to
determine (x) if BA actually incurred such costs for
the development of this service order process
capability to AT&T; and (y) that such costs were
reasonably incurred in order to provide this service
order process capability to AT&T.
(vi) The Parties shall negotiate in good faith to agree on
documented interface specifications and a mutually
acceptable testing period for the service order
capability described above. AT&T agrees to provide
prior written notice to BA in the event it decides to
use such service order capability for any high
volume, unusual quantity or other non-ordinary course
of business request sufficiently prior to the date it
expects to effect such order so that BA may
adequately implement the same, and will agree to
further testing in connection therewith to the extent
required to assure proper implementation. The Parties
shall work cooperatively to assure that any problems
in connection with implementation and the provision
of such service order capabilities are resolved.
(vii) AT&T and BA acknowledge and agree that the new
service order process provided herein shall only be
utilized by AT&T to place orders in a fully
mechanized flow through environment. The parties
further agree that any changes to this service order
type that the parties may undertake to negotiate
shall preserve and not degrade such fully mechanized
processes.
(viii) AT&T's agreement to pay such development costs herein
does not preclude AT&T from asserting a position
against BA's recovery of other development costs
before appropriate regulatory bodies. The Parties
agree that this migration-as-specified provision
shall not be used to support either Party's position
as to the appropriate means for BA to recover its
costs to develop service order processing
capabilities.
(c) AT&T may submit a service order correction, change, supplement
or cancellation (a "Change Order") with respect to an initial
service order for Local Services and
20
<PAGE>
unbundled Network Elements at any time after such service
order has been transmitted to BA. BA anticipates rejecting
such Orders (i) for incorrect information contained in the
Change Order; and (ii) in those instances when the Order has
been removed from queue for processing. If such Change Order
is rejected for reasons other than incorrect information
supplied with the Change Order, AT&T may, at its option,
contact its BA service representative for manual intervention
on a real time basis. The Parties shall cooperate to resolve
any problems which may arise in connection with such service
order process. For Local Services, BA will use commercially
reasonable efforts to implement the new process by December 1,
1997 or sooner, as mutually agreed to by the parties. The
Parties shall mutually agree to an implementation date for
unbundled Network Elements.
(d) As further described in the attached Appendix A to the General
Terms and Conditions of this Agreement, the parties agree to
work together to develop and implement
application-to-application electronic interfaces which already
conform or will conform to national standards for primary
interfaces* adopted by appropriate industry standards bodies,
for the conduct of local service resale, unbundled Network
Elements, and the interconnect business between ILECs and
CLECs. The specifications stated in Appendix A reflect the
Parties' reasonable interpretation of what they believe, at
the present time, to be the future national standards. Both
Parties agree that the interfaces which will be implemented
pursuant to Appendix A will not be proprietary to either party
and that information related to these interfaces will be made
publicly available in accordance with Applicable Laws. Neither
party waives any of its rights as a participant in industry
forums in the development and implementation of national
standards. The Parties acknowledge that the state of the art
in this area is rapidly changing. The Parties agree that this
Section 12(d) of the Agreement and Appendix A hereto and any
joint implementation plans pursuant to Appendix A do not imply
and shall not be used in any manner to demonstrate that (i)
existing BA interfaces do or do not meet OSS requirements
established by appropriate regulatory bodies; (ii) adoption of
national standards is a requirement under the Act, the Order,
or Applicable Laws; or (iii) a particular means of cost
recovery is appropriate or not, except to the extent the
Parties have agreed to cost recovery herein. Except for the
foregoing neither party waives its rights to present its
positions with respect to the adequacy of BA's existing and
future interfaces and the need for national standards.
(e) The Parties acknowledge that activities similar to those
described in this Section 12 and Appendix A to these General
Terms and Conditions are currently underway in New York
pursuant to the NY Agreement and that, where practical, the
Parties do not intend unnecessarily to duplicate performance
thereunder.
- -----------------------
* As used herein, the term "Primary Interface" relates to the interface which is
designated as primary interface amongst more than one alternative offering by an
impartial, recognized standards body in the United States.
21
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130 Operations Plan and Implementation Team. The Parties agree to an
---------------------------------------
Implementation Plan as set forth in Attachment 2 to this Agreement.
140 Force Majeure.
-------------
(a) Neither Party shall be liable for any delay or failure in
performance of any part of this Agreement (other than an
obligation to make money payments) from any cause beyond its
reasonable control and without its fault or negligence
including, without limitation, acts of nature, acts of civil
or military authority, government regulations, embargoes,
epidemics, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, work
stoppages, strikes, equipment failure, power blackouts,
volcanic action, other major environmental disturbances,
unusually severe weather conditions, inability to secure
products or services of other persons or transportation
facilities, or acts or omissions of transportation carriers
(each, a "Force Majeure Event"). If any Force Majeure Event
occurs, the Party delayed or unable to perform shall give
prompt notice to the other Party and shall take all reasonable
steps to mitigate the effects of such Force Majeure Event.
During the pendency of the Force Majeure Event, the duties of
the Parties under this Agreement affected by the Force Majeure
Event shall be abated and, upon cessation of such Force
Majeure Event, shall resume as promptly as reasonably
practicable, without liability thereafter.
(b) Notwithstanding paragraph (a) of this Section 14, no delay or
other failure to perform shall be excused pursuant to this
Section 14 by the acts or omissions of a Party's
subcontractors, materialmen, suppliers or other third persons
providing products or services to such Party unless such acts
or omissions are themselves the product of a Force Majeure
Event, or unless such delay or failure and the consequences
thereof are beyond the reasonable control and without the
fault or negligence of the Party claiming excusable delay or
other failure to perform.
150 Certain State and Local Taxes. Each Party purchasing services hereunder
shall pay or otherwise be responsible for all federal, state, or local sales,
use, excise, gross receipts, transaction or similar taxes, fees or surcharges
levied against or upon such purchasing Party (or the providing Party when such
providing Party is permitted to pass along to the purchasing Party such taxes,
fees or surcharges), except for any tax on either Party's corporate existence,
status or income (other than income taxes included in rates through the
computation of carrying charge factors). Whenever possible, these amounts shall
be billed as a separate item on the invoice. To the extent a sale is claimed to
be qualified for resale tax exemption, the purchasing Party shall furnish the
providing Party a proper resale tax exemption certificate as authorized or
required by statute or regulation by the jurisdiction providing said resale tax
exemption. Failure to timely provide said resale tax exemption certificate will
result in no exemption being available to the purchasing Party.
160 Dispute Resolution.
------------------
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(A) Inter-Company Review Board:
(1) The Parties to this Agreement shall establish an
Inter-Company Review Board consisting of at least one
representative from each Party at the managing
director or above level (or such lower level as the
Parties agree) to assist in the resolution of
disputes between BA and AT&T.
(a) Each Party must designate its initial
representative to the Inter-Company Review
Board within 15 days of the Effective Date
of this Agreement.
(b) The Parties may change their designee, or
select an alternative designee, as required
or deemed appropriate, without notice.
(B) Non-Service Affecting Disputes:
------------------------------
If a non-service affecting dispute arises between BA and AT&T during
the Term of the Agreement, the following process, which shall be
overseen by the Department, shall be followed to resolve such dispute.
In the event the Parties, in good faith, do not agree that a
non-service affecting dispute exists, the dispute shall be assumed to
be a service affecting dispute (except as provided in Paragraph (C)
below) and the process for resolving a service affecting dispute, as
described in Paragraph (C) below, shall be followed.
(1) Informal Negotiation of Non-Service Affecting
---------------------------------------------
Dispute.
-------
If the Parties have a non-service affecting dispute
either Party may initiate the procedures set forth
herein by providing notice of the existence of a
non-service affecting dispute as set forth in Section
17 of the General Terms and Conditions of the
Agreement. The petitioning party shall also serve the
Department and the Inter-Company Review Board with a
copy of the notice.
(a) The Parties shall have an initial 30-day
period beginning from the date on which
either Party has provided written notice to
the other Party identifying the existence of
a non-service affecting dispute within which
to resolve the dispute themselves, without
mediation or arbitration as provided below.
The Parties shall make a reasonable effort
to meet as often as necessary but not less
than one time each week in an effort to
resolve a dispute.
(b) The Parties may also mutually agree to other
informal resolution processes for specific
circumstances, including, but not limited to
commercial mediation or arbitration prior to
requesting the
23
<PAGE>
Department initiate mediation or arbitration
of any non-service affecting dispute between
BA and AT&T.
(2) Formal Mediation or Expedited
-----------------------------
Investigation/Arbitration of Non-Service Affecting
--------------------------------------------------
Dispute by the Department.
--------------------------
If the Inter-Company Review Board is unable to
resolve a non-service affecting dispute within thirty
(30) days (or such other period agreed to in writing
by the Parties) either Party may petition the
Department. The initial petition shall be for
mediation. If agreement cannot be reached through
mediation, the aggrieved Party may then petition the
Department for expedited investigation/arbitration.
The mediation and expedited investigation/arbitration
process shall be overseen by the Department.
(a) A request for mediation shall be submitted
in writing to the Department, with a copy
served on the other Party.
(b) The period of mediation shall be 60 days
commencing on the date of filing of such
petition for mediation. Such petition shall
include a request to the Department to
choose a mediator within the first 10 days
of such 60 day period, and the mediation
shall be conducted by a mediator designated
by the Department. The Department may assign
a staff person or a professional mediator,
funded equally by the Parties, to conduct
the mediation. The Parties shall cooperate
in good faith with the mediator to resolve
the dispute within such 60 day period. If,
at any date following the 45th day of such
60 day period, the Parties have not resolved
their dispute, the Parties may request the
mediator formally declare a deadlock.
(c) Following the earlier to occur of (i)
expiration of the 60-day mediation period
without resolution of the dispute between
the Parties or (ii) formal declaration of a
deadlock by the mediator as contemplated in
preceding paragraph (b), either Party may
petition the Department to open an expedited
investigation/arbitration into the dispute.
The petition should include a comprehensive
explanation of the dispute (e.g., unresolved
issues, areas of agreement, stipulations of
fact), as well as all relevant
correspondence exchanged during negotiations
or mediation. The petitioning Party shall
provide a copy of the petition to the other
Party on the same day that it is filed with
the Department. The petition shall include a
request to open an expedited
investigation/arbitration within 10 business
days of receipt of its petition. The
Department may assign a staff person or a
professional arbitrator, funded equally by
the Parties, to conduct the
24
<PAGE>
expedited investigation/arbitration which
shall be no more than 60 days. The staff
person or arbitrator shall issue and serve
his or her decision and award on the Parties
within 20 business days of the close of the
investigation/arbitration. Any such decision
shall be submitted to the Department for
approval, unless otherwise provided by the
Department.
(C) Service Affecting Disputes:
--------------------------
If a service affecting dispute arises between BA and AT&T
during the Term of the Agreement, the following process, which
shall be overseen by the Department, shall be followed to
resolve such dispute. Any disputes over a matter that directly
affects the ability of a Party to provide uninterrupted
high-quality services to its customers shall be considered a
service affecting dispute. However, in the sole discretion of
the Party identifying the existence of the service affecting
dispute, said dispute may be resolved in accordance with the
general procedures/timeframes for a non-service affecting
dispute, as described above. The Parties agree that disputes
regarding collocation remedies in Exhibit A to Part III hereof
shall not constitute service affecting disputes.
(1) Informal Negotiation of Service Affecting Dispute.
-------------------------------------------------
If the Parties have a service affecting dispute
either Party may initiate the procedures set forth
herein by providing notice of the existence of a
service affecting dispute as set forth in Section 17
of the General Terms and Conditions of the Agreement.
The petitioning party shall also serve the Department
and the Inter-Company Review Board with a copy of the
notice.
(a) The Parties shall have an initial 5 business
day period beginning from the date on which
either Party has provided written notice to
the other Party identifying the existence of
a service affecting dispute and seeking to
resolve it, within which to resolve the
dispute themselves through the Inter-Company
Review Board, without mediation or
arbitration as provided below, except as set
forth in subsection (b) below. The Parties
shall make a reasonable effort to meet as
often as necessary but not less than once in
an effort to resolve the dispute.
(b) The Parties may also mutually agree to other
informal resolution processes for specific
circumstances, including, but not limited to
commercial mediation or arbitration prior to
requesting the Department to initiate
mediation or arbitration of a service
affecting dispute between BA and AT&T.
25
<PAGE>
(2) Formal Expedited Investigation/Arbitration of
----------------------------------------------
Service Affecting Dispute by the Department.
-------------------------------------------
If the Inter-Company Review Board is unable to
resolve a service affecting dispute within 5 business
days (or such other period agreed to in writing by
the Parties) either Party may petition the Department
for expedited consideration and disposition of such
dispute pursuant to paragraph B(2)(c) above. There
shall be no period of mediation. The other Party
shall assent to such request for expedition. In
addition, to the extent technically and operationally
feasible, the Party against whom the complaint has
been made, shall take immediate remedial action to
correct the service affecting condition, without
prejudice to its position on the merits of the
dispute or its right to recover any costs incurred in
implementing an interim solution. The staff person or
arbitrator appointed by the Department shall issue
and serve his or her decision and award on the
Parties within 10 business days of the close of the
investigation/arbitration. Such decision shall be
submitted for approval by the Department, unless
otherwise provided by the Department.
(D) Confidentiality:
---------------
(1) BA, AT&T, and the arbitrator will treat the
arbitration proceedings, including the hearings and
conferences, discovery, or other related events, as
confidential, except as necessary in connection with
a judicial challenge to, or enforcement of, an award,
or unless otherwise required by an order or lawful
process of a court or governmental body.
(2) In order to maintain the privacy of all arbitration
conferences and hearings, the arbitrator shall have
the power to require the exclusion of any person,
other than a Party, counsel thereto, or other
essential persons.
(3) To the extent that any information or materials
disclosed in the course of an arbitration proceeding
contain proprietary, trade secret or confidential
information of either Party, it shall be safeguarded
in accordance with an appropriate agreement for the
protection of proprietary, trade secret or
confidential information that the Parties agree to
negotiate. However, nothing in such negotiated
agreement shall be construed to prevent either Party
from disclosing the other Party's information to the
arbitrator in connection with or in anticipation of
an arbitration proceeding. In addition, the
arbitrator may issue orders to protect the
confidentiality of proprietary information, trade
secrets, or other sensitive information in the event
the Parties cannot agree upon an agreement to govern
the handling of such information.
170 Notices. Any notices or other communications required or permitted to be
given or delivered
26
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under this Agreement shall be in hard-copy writing (unless otherwise
specifically provided herein) and shall be sufficiently given if (a) delivered
personally, (b) delivered by prepaid overnight express service or (c) delivered
by confirmed telecopier transmission with a copy delivered thereafter in the
manner set forth in (a) or (b) above, to the following (unless otherwise
specifically required by this Agreement to be delivered by other means or to
another representative or point of contact and except for notices required in
the ordinary course of business):
If to AT&T:
AT&T Communications of New England, Inc.
32 Avenue of the Americas
New York, NY 10013
Attention: Vice President-Northeast States, LSO
Telecopier: (212) 387-4908
with a copy of each notice relating to an action, suit,
proceeding or claim to be sent simultaneously to:
AT&T Corp.
32 Avenue of the Americas
26th Floor
New York, NY 10013
Attention: Regional V.P. - Law and Government Affairs
Telecopier: (212) 387-5613
If to BA:
BA
1095 Avenue of the Americas
40th Floor
New York, NY 10036
Attention: President -Telecom Industry Services
Telecopier: (212) 597-2562
with a copy of each notice relating to an action, suit,
proceeding or claim to be sent simultaneously to:
BA
1095 Avenue of the Americas
40th Floor
New York, NY 10036
Attention: General Counsel
Telecopier: (212) 597-2560
Either Party may unilaterally change its designated representative
and/or address for the receipt of notices by giving seven (7) days' prior
written notice to the other Party in compliance with
27
<PAGE>
this Section. Any notice or other communication shall be deemed given when
received.
180 Confidentiality.
---------------
(a) Any information such as specifications, drawings, sketches,
business information, forecasts, models, samples, data,
computer programs and other software and documentation of one
Party (a "Disclosing Party") that is furnished or made
available or otherwise disclosed to the other Party or any of
its employees, contractors, agents or Affiliates (its
"Representatives" and, together with a Party, a "Receiving
Party") pursuant to this Agreement (such information, other
than customer proprietary network information, as defined in
Section 222(f)(1) of the Act, being hereinafter collectively
referred to as "Proprietary Information") shall be deemed the
property of the Disclosing Party. Proprietary Information, if
written, shall be marked "Confidential" or "Proprietary" or by
other similar notice, and, if oral or visual, shall be
confirmed in writing as confidential by the Disclosing Party
to the Receiving Party within ten (10) days after disclosure.
Unless Proprietary Information was previously known by the
Receiving Party free of any obligation to keep it
confidential, or has been or is subsequently made public by an
act not attributable to the Receiving Party, or is explicitly
agreed in writing not to be regarded as confidential, or is
independently developed by the Receiving Party, the Parties
hereby agree that in addition to the confidentiality
requirements set forth in the Act and the Order, all
Proprietary Information (i) shall be held in confidence by
each Receiving Party; (ii) shall be disclosed on a
confidential basis to only those persons who have a need for
it in connection with the provision of services required to
fulfill this Agreement and shall be used only for such
purposes; and (iii) may be used for other purposes only upon
such terms and conditions as may be mutually agreed to in
advance of use in writing by the Parties. Notwithstanding the
foregoing sentence, a Receiving Party shall be entitled to
disclose or provide Proprietary Information as required by any
governmental authority or applicable law only in accordance
with Section 18(b) below.
(b) If any Receiving Party is required by any governmental
authority or by applicable law to disclose any Proprietary
Information, then such Receiving Party shall provide the
Disclosing Party with written notice of such requirement, to
the extent permitted by law, as soon as possible and, where
possible, prior to such disclosure. The Disclosing Party may
then seek appropriate protective relief from all or part of
such requirement, and the Receiving Party shall use all
commercially reasonable efforts to cooperate with the
Disclosing Party in attempting to obtain any protective relief
which such Disclosing Party chooses to obtain. Absent any
restraining order or other relief prohibiting any such
disclosure by the Receiving Party, then the Receiving Party
shall be entitled to disclose such Proprietary Information and
shall incur no liability hereunder as a result thereof.
28
<PAGE>
(c) In the event of the expiration or termination of this
Agreement for any reason whatsoever, each Party shall return
to the other Party or destroy all Proprietary Information and
other documents, work papers and other material (including all
copies thereof) obtained from the other Party in connection
with this Agreement and shall use all reasonable efforts,
including instructing its employees and others who have had
access to such information, to keep confidential and not to
use any such information, unless such information is now, or
is hereafter disclosed, through no act, omission or fault of
such Party, in any manner making it available to the general
public.
(d) Except as may be otherwise provided herein, by Applicable Law
or in any FCC rules or procedures hereinafter issued, BA shall
not use any AT&T data, even if the AT&T data is in aggregated
form, for retail marketing purposes, unless such data was
previously known by BA free of any obligation not to use such
data for retail marketing purposes, has been or is
subsequently made public by an act not attributable to BA or
is explicitly agreed in writing not to be subject to the
restriction set forth in this Section 18(d).
(e) BA shall provide to AT&T documentation of BA operational flows
within 60 days after the Effective Date of this Agreement to
help ensure that Section 18(d) above is being complied with by
BA.
(f) The Receiving Party may make copies of Proprietary Information
only as reasonably necessary to perform its obligations under
this Agreement. All such copies shall bear the same copyright
and proprietary rights notices as are contained on the
original.
(g) Except as otherwise expressly provided elsewhere in this
Agreement, no license is hereby granted under any patent,
trademark, or copyright, nor is any such license implied,
solely by virtue of the disclosure of any Proprietary
Information.
(h) The Parties acknowledge and agree that CPNI is governed by
Section 222 of the Act.
190 Number Portability.
------------------
19.1 Interim Number Portability.
--------------------------
(a) Until Number Portability is implemented on an
industry-wide basis pursuant to an order or
regulation issued by the FCC or the Department, the
Parties agree to provide to each other Interim Number
Portability as defined in the Act, ("INP") through
remote call forwarding, route indexing, and full NXX
code migration as set forth below or through any
other technical solution which may, at the option of
the Parties, be mutually agreed to by the Parties.
(b) Upon implementation of Number Portability pursuant to
an FCC or
29
<PAGE>
Department regulation, both Parties agree to conform
and provide such Number Portability in accordance
with said regulation. Once Number Portability is
implemented, either Party may withdraw, at any time
and at its sole discretion, its INP offerings,
subject to reasonable advance written notice to the
other Party.
(c) In the event a Customer of one Party ("Party A")
elects to become a Customer of the other Party
("Party B") and such Customer continues to reside
within the same central office boundary and Rate
Center, and elects to utilize the original telephone
number(s) corresponding to the Exchange Service(s) it
previously received from Party A in conjunction with
the Exchange Service(s) it will now receive from
Party B:
(i) Party B shall, upon receipt from such
Customer of the type of customer
authorization required by the Department or
the FCC (together with an associated service
order which, among other things, indicates
that Party B has obtained the required
customer authorization permitting assignment
of the number to Party B), place an order
with Party A to implement an arrangement
whereby all calls to the original telephone
number(s) will be forwarded to Party B over
the appropriate Local/IntraLATA trunks for
purposes of forwarding the call.
(ii) Party B shall become the customer of record
for the original Party A telephone numbers
subject to the INP arrangements provided
that Party B continues to use the INP
service for the use of the end user customer
originally assigned such number, and in all
respects shall be treated as the customer as
to such number as if Party B has been
assigned such number. Party A shall use its
reasonable efforts to consolidate into as
few billing statements as possible all
collect, calling card, and third-number
billed calls associated with those numbers,
with sub-account detail by retained number.
The parties shall work cooperatively to
enable Party A to provide such billing
statement to Party B in an agreed-upon
format via either electronic file transfer,
daily magnetic tape, or monthly magnetic
tape.
(iii) Party A will update its Line Information
Database ("LIDB") listings for retained
numbers, as directed by Party B, and cancel
calling cards associated with those
forwarded numbers.
(iv) Within two (2) business days of receiving
notification from the new Local Services
carrier or the Customer terminating service
with Party B, Party B shall notify Party A
of the Customer's termination of
30
<PAGE>
service with Party B. Party A will cancel
the INP arrangements for such Customer's
telephone number(s). In the event Party A
changes its telephone numbers, it may
discontinue providing INP service as to such
numbers.
(d) Procedures for Providing INP Through Route Indexing.
---------------------------------------------------
Either Party may deploy a Route Index arrangement
which combines direct trunks provisioned between BA's
and AT&T's end offices with trunk side routing
translations. Under this arrangement, inbound calls
to a ported number will be pointed at a Route Index
that sends the call to a dedicated trunk group, built
as a direct final, for the sole purpose of
facilitating completion for calls to a ported number.
Each Party will coordinate with the other to provide
this solution in a mutually agreeable and
administratively manageable manner (e.g., NXX level)
so as to minimize switch resource utilization for
both Parties. AT&T shall pay to BA all costs and
expenses incurred by BA in implementing such Route
Indexing through tandems as requested by AT&T
including, without limitation, all costs and expenses
arising out of the development of necessary
translations/reprogramming of existing trunk routing,
the provision of additional dedicated trunks serving
each affected tandem and the establishment of
increased call processing and memory capacity to
handle the increased volume of traffic, codes,
translations and routing domains for all affected
tandem or end office switches.
(e) Procedures for Providing INP Through Full NXX Code
--------------------------------------------------
Migration. Where either Party has activated an entire
---------
NXX for a single Customer, or activated a portion
consisting in excess of fifty percent (50%) of an NXX
Code for a single Customer with the remaining numbers
in that NXX either reserved for future use or
otherwise unused, if such Customer chooses to receive
service from the other Party, the first Party shall
cooperate with the second Party to have the entire
NXX reassigned in the LERG (and associated industry
databases, routing tables, etc.) to an end office
operated by the second Party. Such transfer will be
accomplished with appropriate coordination between
the Parties and subject to lead times specified in
ATTIS Numbering Committee Guidelines 95-0407-008 C.O.
code (NXX) Assignment guidelines and NOF Reference
Document, Part II, Section 2.3, NXX Code Openings,
for movements of NXXs from one switch to another.
(f) The Parties shall pay to each other for ported
telephone numbers the amounts determined in
accordance with the Rochester Plan formula as
referenced in Phase 3 of the Arbitration Award.
Terminating IXC access charges shall be shared
between BA and AT&T pursuant to meet-point billing
arrangements between the Parties using special
estimated studies until such time as actual
meet-point billing records are available.
31
<PAGE>
19.2 Number Reassignment. BA shall not be required to reassign to AT&T
thousand number blocks (i.e., split NXX codes into blocks of a thousand numbers)
in the Local Exchange Routing Guide ("LERG") except to the extent that BA agrees
to such reassignment consistent with a change in the national guidelines for
Central Office Code assignments.
200 Directory Listings and Directory Distributions.
----------------------------------------------
(a) BA will include those AT&T Customers of Local Services resold
by AT&T from BA pursuant to Part I hereof in its "White Pages"
and "Yellow Pages" directory listings in accordance with the
terms of Appendix A of Part I, and will distribute such
directories to such customers, in an identical and transparent
manner in which it provides those functions for its own
customers' telephone numbers.
(b) With respect to all other AT&T Customers, BA will include such
AT&T Customers' telephone numbers in all of its "White Pages"
and "Yellow Pages" directory listings (including electronic
directories) and directory assistance databases associated
with the areas in which AT&T provides services to such
Customers, and will distribute such directories to such
Customers, in an identical and transparent manner in which it
provides those functions for its own Customers' telephone
numbers. In this Section 20, references to AT&T Customer
telephone numbers means telephone numbers falling within NXX
codes directly assigned to AT&T and to numbers which are
retained by AT&T on the customer's behalf pursuant to Interim
Number Portability arrangements described in Section 19 of the
General Terms and Conditions of this Agreement.
(c) BA will include all AT&T NXX codes on appropriate existing
calling charts in the BA Customer Guide section of the
directory in the same manner as it provides this information
for its own NXX Codes. BA shall assist AT&T in dealing with
Bell Atlantic Yellow Pages Company to facilitate Bell Atlantic
Yellow Pages Company's publication of AT&T Calling Charts or
other AT&T information in the front portion of Bell Atlantic
Yellow Pages Company directories distributed in the MA Region.
(d AT&T will provide BA with its directory listings and daily
updates to those listings (including new, changes, and deleted
listings) on a non-exclusive basis in a mutually agreed upon
format at no charge.
(e BA will accord AT&T's directory listing information the same
level of confidentiality which BA accords its own directory
listing information.
(f BA shall provide AT&T at no charge with directory distribution
for AT&T Customers. The Parties hereby acknowledge and agree
that BA is not required, as per applicable tariffs, to provide
more than one free white pages directory listing for each
32
<PAGE>
CENTREX system purchased for resale, regardless of the number
of CENTREX lines purchased as part of such system.
(g BA will provide AT&T with a report of all AT&T customer
listings 90 days prior to directory publication in such form
and format as may be mutually agreed to by both parties. Both
Parties shall use their best efforts to ensure the accurate
listing of such information.
(h BA will work cooperatively with AT&T so that Yellow Page
advertisements purchased by Customers who switch their service
to AT&T (including Customers utilizing Interim Number
Portability) are maintained without interruption. BA will
allow AT&T customers to purchase new Yellow Pages
advertisements without discrimination, under the identical
rates, terms and conditions that apply to BA's customers.
(i BA will include, on one-eighth of a page, in the "Information
Pages" or comparable section of its White Pages Directories
for areas served by AT&T in the MA Region, listings provided
by AT&T for AT&T's installation, repair and customer service
and other customer service-oriented information, including
appropriate identifying logo. Such listings shall appear in
the manner that such information appears for subscribers of BA
and other LECs. BA shall not charge AT&T for inclusion of this
information.
(j Electronic Format Directory Assistance. Upon at least thirty
--------------------------------------
days notice from AT&T, BA shall provide to AT&T in electronic
format BA's master directory assistance listing for BA end
user customers in the MA Region, exclusive of non-published
numbers to the extent that BA is prohibited from selling or
offering to sell such numbers under Applicable Law. BA shall
also provide AT&T with updates (containing adds, deletes and
changes only) to these listings, at the same frequency that BA
updates its own directory assistance databases. The Parties
shall mutually agree to content, format and timing
specifications for these directory assistance listings. Such
directory assistance listings shall only be used by AT&T for
the purpose of providing local directory assistance to AT&T
local exchange service customers. AT&T shall pay BA a rate
based on the cost of providing directory assistance listings
and updates in an electronic format, including a reasonable
profit.
21. Subscriber List Information.
---------------------------
(a At AT&T's request, in accordance with Section 222(e) and (f)
of the Act, for the purpose of publishing a directory in any
format, BA shall provide to AT&T published Subscriber List
Information on a timely basis via readily accessible tape or
electronic formats on the same terms and conditions and at the
same rates that BA provides its own Subscriber List
Information to third party directory publishers. Changes to
the Subscriber List Information shall be available on a timely
basis through the same tape
33
<PAGE>
or electronic transfer means used to transmit the initial
Subscriber List Information at the same rates and on the same
terms and conditions that BA provides its own Subscriber List
Information to third party directory publishers. Subscriber
List Information provided by BA shall indicate whether the
customer is a residence or business customer.
(b BA shall provide Subscriber List information that includes
AT&T Customers to third parties, as required by the Act, on
the same terms and conditions and at the same rates that BA
provides its own Subscriber List Information to third parties.
AT&T shall receive its pro-rata share (calculated based on the
proportionate share of AT&T Customers to the total number of
customers included in the Subscriber List Information) of net
proceeds realized by BA from third parties for such Subscriber
List Information; provided, however, that BA shall not be
required to include AT&T Customers in Subscriber List
Information sales to third parties (other than AT&T) if BA
promptly notifies AT&T of all requests by third party
directory publishers and others for AT&T Subscriber List
Information thus permitting AT&T to deal directly with said
third parties.
22. Miscellaneous.
-------------
22.1 Delegation or Assignment - Neither Party may assign or
transfer (whether by operation of law or otherwise) this
Agreement (or any rights or obligations hereunder) to a third
party without the prior written consent of the other Party
which consent shall not be unreasonably withheld or delayed;
provided, however, each Party may assign this Agreement to a
corporate Affiliate or an entity under its common control or
an entity acquiring all or substantially all of its assets or
equity by providing prior written notice to the other Party of
such assignment or transfer. Any attempted assignment or
transfer that is not permitted shall be void ab initio. All
obligations and duties of any Party shall be binding on all
successors in interest and assigns of such Party.
22.2 Nonexclusive Remedies - Except as otherwise expressly provided
in this Agreement, each of the remedies provided under this
Agreement is cumulative and is in addition to any remedies
that may be available at law or in equity.
22.3 No Third Party Beneficiaries - Except as may be specifically
set forth in this Agreement, this Agreement does not provide
and shall not be construed to provide third parties with any
remedy, claim, liability, reimbursement, cause of action, or
other privilege.
22.4 Referenced Documents - Unless otherwise specifically provided
herein, whenever any provision of this Agreement refers to a
technical reference, technical publication, AT&T Practice, BA
Practice, any publication of telecommunications industry
administrative or technical standards, or any other document
specifically incorporated
34
<PAGE>
into this Agreement, it will be deemed to be a reference to
the most recent version or edition (including any amendments,
supplements, addenda, or successors) of such document that is
in effect, and will include the most recent version or edition
(including any amendments, supplements, addenda, or
successors) of each document incorporated by reference in such
a technical reference, technical publication, AT&T Practice,
BA Practice, or publication of industry standards.
22.5 Governing Law - The validity of this Agreement, the
construction and enforcement of its terms, and the
interpretation of the rights and duties of the Parties shall
be governed by the laws of the Commonwealth of Massachusetts
other than as to conflicts of laws, except insofar as federal
law may control any aspect of this Agreement, in which case
federal law shall govern such aspect.
22.6 Publicity and Advertising - Neither Party shall publish or use
any advertising, sales promotions or other publicity materials
that use the other Party's logo, trademarks or service marks
without the prior written approval of the other Party. Neither
BA nor AT&T may offer services to its end users or others
under any of the brand names of the other Party or any of its
parents, subsidiaries or affiliates, regardless of whether or
not such brand names are registered trademarks or
servicemarks, without the other Party's prior written
authorization. Neither Party shall state or imply that there
is any partnership or other joint business arrangement with
the other Party, its parent, subsidiaries, or affiliates, for
the provision of services to the other Party's end users or
others. BA and AT&T may jointly develop a press release
publicizing their relationship under this Agreement, subject
to both (1) any prior non-disclosure agreement, and (2)
mutually agreed upon language and media. Notwithstanding this
section, AT&T is entitled to identify BA as the underlying
carrier of the services provided hereunder.
22.7 Amendments or Waivers - Except as otherwise provided in this
Agreement, no amendment or waiver of any provision of this
Agreement, and no consent to any default under this Agreement,
shall be effective unless the same is in writing and signed by
both Parties. In addition, no course of dealing or failure of
a Party strictly to enforce any term, right or condition of
this Agreement shall be construed as a waiver of such term,
right or condition. By entering into this Agreement neither
Party waives any right granted to it pursuant to the Act
and/or the Order, except to the extent the Act or the Order
permits such rights to be modified or waived and such
modification or waiver is expressly set forth herein.
22.8 Severability - If any term, condition or provision of this
Agreement is held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not
invalidate the entire Agreement, unless such construction
would be unreasonable. However, the Parties agree to meet and
negotiate in good faith to arrive at a mutually acceptable
modification of the invalid or unenforceable provision. If the
Parties are
35
<PAGE>
unable to agree on such modification within 30 days after the
Agreement provision(s) is held to be illegal, invalid or
enforceable, such failure to agree shall be resolved in
accordance with the Dispute Resolution process in Section 16
of the General Terms and Conditions.
22.9 Entire Agreement - This Agreement, which shall include the
Attachments, Appendices, Exhibits and other documents
referenced herein, including all applicable tariffs as
referenced herein (as in effect from time to time except with
respect to those provisions in this Agreement in which it is
expressly provided otherwise), constitutes the entire
Agreement between the Parties concerning the subject matter
hereof and supersedes any prior agreements, representations,
statements, negotiations, understandings, proposals or
undertakings, oral or written, with respect to the subject
matter expressly set forth herein. Neither Party shall be
bound by any terms additional to or different from those in
this Agreement that may appear subsequently in the other
Party's form documents, purchase orders, quotations,
acknowledgments, invoices or other communications.
22.10 Survival of Obligations - Any liabilities or obligations of a
Party for acts or omissions prior to the cancellation or
termination of this Agreement; any obligation of a Party under
the provisions regarding indemnification, Proprietary
Information, limitations on liability, and any other
provisions of this Agreement which, by their terms, are
contemplated to survive (or to be performed after) termination
of this Agreement, shall survive expiration or termination
hereof.
22.11 Executed in Counterparts - This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original, but such counterparts shall together constitute one
and the same instrument.
22.12 Headings of No Force or Effect - The headings of Articles and
Sections of this Agreement are for convenience of reference
only, and shall in no way define, modify or restrict the
meaning or interpretation of the terms or provisions of this
Agreement.
22.13 Joint Work Product - This Agreement is the joint work product
of the Parties and their respective counsel and shall be
fairly interpreted in accordance with its terms and, in the
event of any ambiguities, no inferences shall be drawn against
either Party.
22.14 Nonexclusive Dealings - This Agreement does not prevent either
Party from providing or purchasing services to or from any
other person nor, except as provided in Section 5 of the
General Terms and Conditions and Exhibit A (Bona Fide Request
Process) of Part II hereof, does it obligate either Party to
provide or purchase any services not specifically provided
herein.
36
<PAGE>
22.15 No License - No license under patents, copyrights or any other
intellectual property right (other than the limited license to
use consistent with the terms, conditions and restrictions of
this Agreement) is granted by either Party or shall be implied
or arise by estoppel with respect to any transactions
contemplated under this Agreement.
22.16 Dialing Parity - In addition to the parity requirements set
forth in Section E of Part I, the Parties shall provide
dialing parity to each other as required under Section
251(b)(3) of the Act, except as may be limited by Section 271
(e)(2)(B) of the Act.
22.17 Disclaimer of Warranties - Upon the Department's ruling that
it has substantially completed the establishment of
performance standards and remedies in the Consolidated
Arbitrations, D.P.U. 96-73/74, 96-75, 96-80/81, 96-83 and
96-94, the following disclaimer shall take effect: EXCEPT AS
EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
SERVICES, FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR
CONTEMPLATED BY THIS AGREEMENT AND THE PARTIES DISCLAIM THE
IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE.
37
<PAGE>
EXHIBIT 10.25
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
Dated as of December 18, 1998
by and between
NEW YORK TELEPHONE COMPANY,
d/b/a
BELL ATLANTIC - NEW YORK
and
COMMUNITY NETWORKS, INC.
<PAGE>
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
This Interconnection Agreement (this "Agreement"), under Sections 251 and
252 of the Telecommunications Act of 1996 (the "Act"), is effective as of the
18th day of December, 1998 (the "Effective Date"), by and between New York
Telephone Company, d/b/a Bell Atlantic -New York ("BA"), a New York corporation
with offices at 1095 Avenue of the Americas, New York, NY 10036, and Community
Networks, Inc. ("Community"), a New York corporation with offices at 45-18 Court
Square, Suite 403, Long Island City, NY 11101 (each a "Party" and, collectively,
the "Parties").
WHEREAS, Community has requested that BA make available to Community
Interconnection, service and unbundled Network Elements upon the same terms and
conditions as provided in the Interconnection Agreement (and amendments thereto)
between MGC Communications, Inc. and BA, dated as of April 3, 1998, for New
York, approved by the Public Service Commission ("Commission") under Section 252
of the Act (the "Separate Agreement") and attached as Appendix 1 hereto; and
WHEREAS, BA has undertaken to make such terms and conditions available to
Community hereby only because of and, to the extent required by, Section 252(i)
of the Act.
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Community and BA hereby agree as follows:
1.0 Incorporation of Appendices by Reference
1.1 Except as expressly stated herein, the terms and conditions of the
Separate Agreement (as set forth in Appendix 1 hereto), as it is in effect on
the date hereof after giving effect to operation of law, and of the other
Appendix hereto, are incorporated by reference in their entirety herein and form
an integral part of this Agreement.
1.2 References in Appendix 1 hereto to MGC Communications, Inc. or to MGC
shall for purposes of this Agreement be deemed to refer to Community.
1.3 References in Appendix 1 hereto to the "Effective Date", the date of
effectiveness thereof and like provisions shall for purposes of this Agreement
be deemed to refer to the date first written above. Unless terminated earlier
in accordance with the terms of Appendix 1 hereto,
<PAGE>
this Agreement shall continue in effect until the Separate Agreement expires or
is otherwise terminated.
1.4 All references in Appendix 1 hereto to "800/888" shall be deleted in
their entirety and replaced with the following: "800/888/877".
1.5 Notices to Community under Section 29.10 of Appendix 1 hereto shall be
sent to the following address:
Community Networks, Inc.
Chief Operating Officer
45-18 Court Square
Suite 403
Long Island City, NY 11101
Telephone: (718) 706-9413
Facsimile: (718) 706-9411
1.6 Notices to BA under Section 29.10 of Appendix 1 hereto shall be sent
to the following address:
President - Telecom Industry Services
Bell Atlantic Corporation
1095 Avenue of the Americas
40th Floor
New York, New York 10036
Facsimile: (212) 597-2585
with a copy to:
Bell Atlantic Network Services, Inc.
Attn: Jack H. White
Associate General Counsel
1320 N. Court House Road, 8th Floor
Arlington, Virginia 22201
Telephone: (703) 974-1368
Facsimile: (703) 974-0744
<PAGE>
with a copy to:
Bell Atlantic Corporation
1095 Avenue of the Americas
Room 3732
New York, NY 10036
Attn: Sandra Thom
General Counsel
Telephone: (212) 395-6515
Facsimile: (212) 768-7568
1.7 Schedule 4.0 set forth at Appendix 2 hereto shall replace and
supersede in its entirety Schedule 4.0 of Appendix 1 hereto.
2.0 Clarifications
2.1 Section 1.50, definition of "Local Traffic", and Section 5.7.3 on
Reciprocal Compensation arrangements, in each case of Appendix 1 hereto, are
hereby deleted in their entirety and replaced as follows:
"1.50 "Local Traffic" means traffic that is originated by a Customer
of one Party on that Party's network and terminates to a Customer of the
other Party on that other Party's network, within a given local calling
area, or expanded area service ("EAS") area, as defined in BA's effective
Customer tariffs, or, if the Commission has defined local calling areas
applicable to all LEC's, then as so defined by the Commission. In
addition, Local Traffic does not include any traffic that is transmitted to
or returned from the Internet at any point during the duration of the
transmission ("Internet Traffic")."
"5.7.3 The Reciprocal Compensation arrangements set forth in this
Agreement are not applicable to Switched Exchange Access Service or to any
other IntraLATA or InterLATA calls originated on a third party carrier's
network on a 1+ presubscribed basis or a casual dialed (10XXX or 101XXXX)
basis or other forms of exchange access, including origination or
termination of Internet Traffic. All Switched Exchange Access Service and
all Toll Traffic shall continue to be governed by the terms and conditions
of the applicable federal and state Tariffs or the terms and conditions of
section 6.3, if applicable. To the extent that either Party is unable to
measure the volume of such traffic, the Parties agree to work cooperatively
to estimate such traffic volume. Unless otherwise provided under
Applicable Law, Reciprocal Compensation arrangements shall apply to
IntraLATA Toll Traffic originated on one Party's network and delivered by
that Party to the other Party's network."
3
<PAGE>
2.2 The Parties agree that if any judicial or regulatory authority of
competent jurisdiction determines (or has determined) that BA is not required to
furnish any service or item or provide any benefit to Telecommunications
Carriers otherwise required to be furnished or provided to Community hereunder,
then BA may, at its sole option, avail itself of any such determination by
providing written notice thereof to Community.
2.3 The entry into, filing and performance by BA of this Agreement does
not in any way constitute a waiver by BA of any of the rights and remedies it
may have to seek review of any of the provisions of the Separate Agreement, or
to petition the Commission, other administrative body or court for
reconsideration or reversal of any determination made by any of them, or to seek
review in any way of any portion of this Agreement in connection with
Community's election under Section 252(i) of the Act.
2.4 Notwithstanding any other provisions of this Agreement, BA shall have
no obligation to perform under this Agreement until such time as Community has
obtained a Certificate of Public Convenience and Necessity ("CPCN") or such
other Commission authorization as may be required by law as a condition for
conducting business in the State of New York as a local exchange carrier.
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of this 18th day of December, 1998.
COMMUNITY NETWORKS, INC. BELL ATLANTIC- NEW YORK
By: By:
------------------------------- ----------------------------------
Printed: Printed: Jeffrey A. Masoner
------------------------- ----------------------------
Title: Title: Vice President-Interconnection
---------------------------- ------------------------------
Services Policy & Planning
------------------------------
5
<PAGE>
[Letterhead of Bell Atlantic Network-Services, Inc.]
December 18, 1998
VIA OVERNIGHT MAIL
- ------------------
Eric G. Roden
Chief Operating Officer
Community Networks, Inc.
45-18 Court Square
Suite 403
Long Island City, NY 11101
RE: Interconnection Agreement between Bell Atlantic
and Community Networks, Inc. for New York
-----------------------------------------------
Dear Mr. Roden:
In an Order released on October 30, 1998 in CC Docket 98-79, the FCC ruled
that traffic that originates on a carrier's network and then terminates over the
Internet via the facilities of an Internet Service Provider ("ISP") comprises a
single call. The FCC also ruled that such traffic, when carried over ADSL
facilities, is jurisdictionally interstate, and not local. A further order and
notice of proposed rulemaking is to be released in the next several days.
In light of these developments, and to avoid any other confusion about the
issue, Bell Atlantic is not in a position at this time to execute any
interconnection agreement that does not explicitly state both that Internet
traffic is not local, and that Bell Atlantic is not obligated to pay reciprocal
compensation on such traffic. Accordingly, our proposed agreements have been
modified to eliminate any possible confusion about the intended and literal
meaning of the contract language.
Please sign the flagged signature pages and return both signature pages to
my attention at the above address. The documents will then be forwarded to
Jeffrey A. Masoner for his signature and we will send back one executed set of
signature pages to your attention.
If you have any questions please contact me on (212) 395-3256.
Sincerely,
Robin L. Calcagno
<PAGE>
APPENDIX 1
<PAGE>
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
Dated as of April 3, 1998
by and between
BELL ATLANTIC - NEW YORK
and
MGC COMMUNICATIONS, INC.
<PAGE>
MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<C> <S> <C>
1.0 DEFINITIONS.......................................................2
2.0 INTERPRETATION AND CONSTRUCTION..................................13
3.0 SCOPE............................................................13
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)....................14
4.1 Scope.......................................................14
4.2 Physical Architecture.......................................15
4.3 Technical Specifications....................................16
4.4 Interconnection in Additional LATAs.........................17
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE
TRAFFIC PURSUANT TO SECTION 251(c)(2)............................17
5.1 Scope of Traffic............................................17
5.2 Switching System Hierarchy..................................18
5.3 Trunk Group Architecture and Traffic Routing................19
5.4 Signaling...................................................20
5.5 Grades of Service...........................................20
5.6 Measurement and Billing.....................................21
5.7 Reciprocal Compensation Arrangements -- Section 251(b)(5)...21
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC
PURSUANT TO 251(c)(2)......................................... 23
6.1 Scope of Traffic......................................... 23
6.2 Trunk Group Architecture and Traffic Routing............. 23
6.3 Meet-Point Billing Arrangements.......................... 24
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC........... 24
7.1 Information Services Traffic............................. 24
7.2 Tandem Transit Service ("Transit Service")............... 26
7.3 911/E911 Arrangements.................................... 27
</TABLE>
-i-
<PAGE>
MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
<TABLE>
<CAPTION>
<C> <S> <C>
8.0 NUMBER RESOURCES, RATE CENTERS AND RATING POINTS................... 28
9.0 NETWORK MAINTENANCE AND MANAGEMENT; OUTAGES........................ 29
9.1 Cooperation................................................... 29
9.2 Responsibility for Following Standards........................ 29
9.3 Interference or Impairment.................................... 29
9.4 Repeated or Willful Noncompliance............................. 30
9.5 Outage Repair Standard........................................ 30
9.6 Notice of Changes -- Section 251(c)(5)........................ 30
9.7 Fraud......................................................... 30
10.0 JOINT NETWORK CONFIGURATION AND GROOMING PROCESS; AND
INSTALLATION, MAINTENANCE, TESTING AND REPAIR...................... 31
10.1 Joint Network Configuration and Grooming Process............. 31
10.2 Installation, Maintenance, Testing and Repair................ 31
10.3 Network Reliability Council.................................. 32
10.4 Forecasting, Requirements for Trunk Provisioning............. 32
10.5 Demand Management Forecasts.................................. 33
11.0 UNBUNDLED ACCESS -- SECTION 251(c)(3).............................. 33
11.1 Available Network Elements................................... 34
11.2 Unbundled Local Loop ("ULL") Types........................... 34
11.3 Unbundled Switching Elements................................. 36
11.4 Unbundled Inter Office Facilities............................ 36
11.5 Operations Support Systems................................... 36
11.6 Limitations on Unbundled Access.............................. 36
11.7 Availability of Other Network Elements on an Unbundled Basis. 37
11.8 Provisioning of Unbundled Local Loops........................ 38
11.9 Maintenance of Unbundled Network Elements.................... 39
11.10 Other Terms and Conditions Including Rates and Charges....... 40
12.0 RESALE -- SECTIONS 251(c)(4) and 251(b)(1)......................... 40
12.1 Availability of Wholesale Rates for Resale................... 40
12.2 Availability of Retail Rates for Resale...................... 40
12.3 Additional Terms Governing Resale and Use of BA Services..... 40
13.0 COLLOCATION -- SECTION 251(c)(6)................................... 41
</TABLE>
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
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13.6 Dedicated Transit Service.................................... 43
14.0 NUMBER PORTABILITY-SECTION 251(B)(2)............................... 43
14.1 Scope........................................................ 43
14.2 Procedures for Providing INP Through Remote Call Forwarding.. 44
14.3 Procedures for Providing INP Through Route Indexing.......... 45
14.4 Procedures for Providing INP Through Full NXX Code Migration. 46
14.5 Other Interim Number Portability Options..................... 46
14.6 Receipt of Terminating Compensation on Traffic to INP'ed
Numbers...................................................... 46
14.7 Recovery of INP Costs Pursuant to FCC Order and Rulemaking... 47
15.0 DIALING PARITY -- SECTION 251(b)(3)................................ 48
16.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4)....................... 48
17.0 DATABASES AND SIGNALING............................................ 48
18.0 COORDINATED SERVICE ARRANGEMENTS................................... 48
18.1 Intercept and Referral Announcements......................... 48
18.2 Coordinated Repair Calls..................................... 49
18.3 Customer Authorization....................................... 49
19.0 DIRECTORY SERVICES ARRANGEMENTS.................................... 50
19.1 Directory Listings and Directory Distributions............... 50
19.2 Directory Assistance and Operator Services................... 52
19.3 Directory Assistance Call Completion......................... 53
19.4 Directory Assistance Credits................................. 54
19.5 Direct Access to Directory Assistance........................ 55
19.6 Inward Operator Services..................................... 55
19.7 Operator Services............................................ 56
19.8 0+ Mechanized Operator Calls (Calling Card, Collect, Bill to
Third Number)................................................ 57
19.9 0- Operator Handled Calls (Calling Card, Collect, Bill to
Third Number)................................................ 57
19.10 Operator Emergency Bulletin Service.......................... 58
19.11 Operator Passthrough Service................................. 58
20.0 COORDINATION WITH TARIFF TERMS...................................... 59
</TABLE>
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21.0 INSURANCE.......................................................... 60
22.0 TERM AND TERMINATION............................................... 61
23.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES....................... 61
24.0 CANCELLATION CHARGES............................................... 62
25.0 INDEMNIFICATION.................................................... 62
26.0 LIMITATION OF LIABILITY............................................ 63
27.0 PERFORMANCE STANDARDS FOR SPECIFIED ACTIVITIES..................... 64
27.1 Performance Standards........................................ 64
27.2 Performance Reporting........................................ 64
28.0 COMPLIANCE WITH LAWS; REGULATORY APPROVAL.......................... 64
29.0 MISCELLANEOUS...................................................... 66
29.1 Authorization................................................ 66
29.2 Independent Contractor....................................... 66
29.3 Force Majeure................................................ 66
29.4 Confidentiality.............................................. 67
29.5 Choice of Law................................................ 68
29.6 Taxes........................................................ 68
29.7 Assignment................................................... 69
29.8 Billing and Payment; Disputed Amounts........................ 69
29.9 Dispute Resolution........................................... 70
29.10 Notices...................................................... 72
29.11 Section 252(i) Obligations................................... 73
29.12 Joint Work Product........................................... 73
29.13 No Third Party Beneficiaries; Disclaimer of Agency........... 73
29.14 No License................................................... 74
29.15 Technology Upgrades.......................................... 75
29.16 Survival..................................................... 75
29.17 Entire Agreement............................................. 75
29.18 Counterparts................................................. 75
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29.19 Modification, Amendment, Supplement, or Waiver............... 75
29.20 Successors and Assigns....................................... 76
29.21 Publicity and Use of Trademarks or Service Marks............. 76
29.22 Restructured/New Rates....................................... 76
29.23 Integrity of BELL ATLANTIC Network........................... 76
</TABLE>
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
LIST OF SCHEDULES AND EXHIBITS
Schedules
- ---------
Schedule 1.0 Certain Terms As Defined in the Act
Schedule 4.0 Network Interconnection Schedule
Schedule 7.1.4 Billing Arrangements for Variable-Rated Information
Services Calls
Exhibits
- --------
Exhibit A Bell Atlantic - New York and MGC Pricing Schedule
Exhibit B Network Element Bona Fide Request
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
This Interconnection Agreement under Sections 251 and 252 of the
Telecommunications Act of 1996 ("Agreement"), is effective as of the Third day
of April, 1998 (the "Effective Date"), by and between New York Telephone Company
d/b/a Bell Atlantic-New York ("BA" or "Bell Atlantic"), a New York corporation
with offices at 1095 Avenue of the Americas, New York NY 10036, and MGC
Communications, Inc. ("MGC"), a Nevada corporation, with offices at 3301 North
Buffalo Drive, Las Vegas, Nevada 89129.
WHEREAS, the Parties want to interconnect their networks at mutually agreed
upon points of interconnection to provide Telephone Exchange Services, Switched
Exchange Access Services, and other Telecommunications Services (all as defined
below) to their respective customers;
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
the Parties will interconnect their networks and provide other services as
required by the Act (as defined below) and additional services as set forth
herein; and
WHEREAS, Sections 251, 252, and 271 of the Telecommunications Act of 1996
have specific requirements for interconnection, unbundling, and service resale,
commonly referred to as the "Checklist", and the Parties intend that this
Agreement meet those Checklist requirements.
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, MGC and BA hereby agree as follows:
This Agreement sets forth the terms, conditions and pricing under which BA
and MGC (individually, a "Party" and collectively, the "Parties") will offer and
provide to each other network Interconnection, access to Network Elements,
ancillary services, and wholesale Telecommunications Services available for
resale within each LATA in which they both operate within New York State. As
such, this Agreement is an integrated package that reflects a balancing of
interests critical to the Parties. It will be submitted to the New York Public
Service Commission, and the Parties will specifically request that the
Commission refrain from taking any action to change, suspend or otherwise delay
implementation of the Agreement. So long as the Agreement remains in effect,
neither Party shall advocate before any legislative, regulatory, or other public
forum that any terms of this Agreement be modified or eliminated, unless
mutually agreed to by the Parties.
<PAGE>
MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.0 DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
specified below in this Section 1.0. For convenience of reference only, the
definitions of certain terms that are As Defined in the Act (as defined below)
are set forth on Schedule 1.0. Schedule 1.0 sets forth the definitions of such
terms as of the date specified on such Schedule and neither Schedule 1.0 nor any
revision, amendment or supplement thereof intended to reflect any revised or
subsequent interpretation of any term that is set forth in the Act is intended
to be a part of or to affect the meaning or interpretation of this Agreement.
1.1 "Act" means the Communications Act of 1934 (47 U.S.C.(S)151 et seq.)
------
as amended by the Telecommunications Act of 1996, and as from time to time
interpreted in the duly authorized rules and regulations of the FCC or a
Commission within its state of jurisdiction.
1.2 "ADSL" or "Asymmetrical Digital Subscriber Line" is a digital loop
transmission technology which permits the transmission of up to 6 Mbps
downstream (from the CO to the end-user customer) and up to 640 kbps digital
signal upstream (from the end-user customer to the CO).
1.3 "Affiliate" is As Defined in the Act.
1.4 "Agreement" means this Interconnection Agreement under Sections 251
and 252 of the Act and all the Exhibits, Schedules, addenda, and attachments
referenced herein and/or appended hereto.
1.5 "Agreement for Switched Access Meet Point Billing" means the Agreement
for Switched Access Meet Point Billing between the Parties.
1.6 "Ancillary Traffic" means all traffic that is destined for ancillary
services, or that may have special billing requirements, including but not
limited to the following: BLV/BLVI, Directory Assistance, 911/E911, Operator
Services (IntraLATA call completion), IntraLATA third party, collect and calling
card, 800/888 database query, LIDB, and information services requiring special
billing arrangements between the Parties.
1.7 "Applicable Laws" or "Applicable Law" means all laws, regulations, and
orders applicable to each Party's performance of its obligations hereunder.
1.8 "As Defined in the Act" means as specifically defined by the Act and
as from time to time interpreted in the duly authorized rules and regulations of
the FCC or the Commission.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.9 "As Described in the Act" means as described in or required by the Act
and as from time to time interpreted in the duly authorized rules and
regulations of the FCC or the Commission.
1.10 "Automatic Number Identification" or "ANI" means a Feature Group D
signaling parameter which refers to the number transmitted through a network
identifying the billing number of the calling party.
1.11 "Bona Fide Request" or "BFR" means the process described on Exhibit B
that prescribes the terms and conditions relating to a Party's request that the
other Party provide a BFR Item (as defined in Exhibit B) not otherwise provided
by the terms of this Agreement.
1.12 "Busy Line Verification" or "BLV" means an operator request for a
status check on the line of a called party. The request is made by one Party's
operator to an operator of the other Party. The verification of the status
check is provided to the requesting operator.
1.13 "Busy Line Verification Interrupt" or "BLVI" means a service that may
be requested and provided when Busy Line Verification has determined that a line
is busy due to an ongoing call. BLVI is an operator interruption of that ongoing
call to inform the called party that a calling party is seeking to complete his
or her call to the called party.
1.14 "Calling Party Number" or "CPN" is a Common Channel Signaling ("CCS")
parameter which refers to the number transmitted through a network identifying
the calling Party.
1.15 "Central Office Switch" means a switch used to provide
Telecommunications Services, including, but not limited to:
(a) "End Office Switch" or "End Office" is a switching entity that is
used to terminate Customer station Loops for the purpose of Interconnection
to each other and to trunks; and
(b) "Tandem Office Switch" or "Tandem Office" or "Tandem" is a
switching entity that has billing and recording capabilities and is used to
connect and switch trunk circuits between and among End Office Switches and
between and among End Office Switches and carriers' aggregation points,
points of termination, or points of presence, and to provide Switched
Exchange Access Services.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
A Central Office Switch may also be employed as a combination End
Office/Tandem Office Switch.
1.16 "CLASS Features" means certain CCS-based features available to
Customers including, but not limited to: Automatic Call Back; Call Trace; Caller
Identification; Call Return and future CCS-based offerings.
1.17 "Collocation" means an arrangement whereby one Party's (the
"Collocating Party") facilities are terminated in its equipment necessary for
Interconnection or for access to Network Elements offered by the second Party on
an unbundled basis that has been installed and maintained at the premises of a
second Party (the "Housing Party"). For purposes of Collocation, the "premises"
of a Housing Party is limited to a Housing Party Wire Center, other mutually
agreed-upon locations of the Housing Party, or any location for which
Collocation has been ordered by the FCC or Commission. Collocation may be
"physical" or "virtual". In "Physical Collocation", the Collocating Party
installs and maintains its own equipment in the Housing Party's premises. In
"Virtual Collocation", the Housing Party owns, installs, and maintains equipment
dedicated to use by the Collocating Party in the Housing Party's premises. BA
currently provides Collocation under terms, rates, and conditions as described
in tariffs on file or soon to be filed with the FCC or the Commission.
1.18 "Commission" or "PSC" means the New York State Public Service
Commission.
1.19 "Common Channel Signaling" or "CCS" means the signaling system,
developed for use between switching systems with stored-program control, in
which all of the signaling information for one or more groups of trunks is
transmitted over a dedicated high-speed data link rather than on a per-trunk
basis and, unless otherwise agreed by the Parties, the CCS used by the Parties
shall be SS7.
1.20 "Competitive Local Exchange Carrier" or "CLEC" means any Local
Exchange Carrier other than BA, operating as such in BA's service territory in
New York. MGC is or will shortly become a CLEC.
1.21 "Cross Connection" means a jumper cable or similar connection
provided pursuant to Collocation at the Digital Signal Cross Connect, Main
Distribution Frame or other suitable frame or panel between (i) the Collocating
Party's equipment and (ii) the equipment or facilities of the Housing Party.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.22 "Customer" means a third-Party residence or business that subscribes
to Telecommunications Services provided by either of the Parties.
1.23 "Customer Proprietary Network Information" or "CPNI" is as Defined in
the Act.
1.24 "Dialing Parity" is As Defined in the Act. As used in this Agreement,
Dialing Parity refers to both Local Dialing Parity and Toll Dialing Parity.
"Local Dialing Parity" means the ability of Telephone Exchange Service Customers
of one LEC to select a provider and make local calls without dialing extra
digits. "Toll Dialing Parity" means the ability of Telephone Exchange Service
Customers of a LEC to place toll calls (inter or IntraLATA) which are routed to
a toll carrier (IntraLATA or InterLATA) of their selection without dialing
access codes or additional digits and with no unreasonable dialing delay.
1.25 "Digital Signal Level" means one of several transmission rates in the
time-division multiplex hierarchy.
1.26 "Digital Signal Level 0" or "DS0" means the 64 Kbps zero-level signal
in the time-division multiplex hierarchy.
1.27 "Digital Signal Level 1" or "DS1" means the 1.544 Mbps first-level
signal in the time-division multiplex hierarchy. In the time-division
multiplexing hierarchy of the telephone network, DS1 is the initial level of
multiplexing.
1.28 "Digital Signal Level 3" or "DS3" means the 44.736 Mbps third-level
in the time-division multiplex hierarchy. In the time-division multiplexing
hierarchy of the telephone network, DS3 is defined as the third level of
multiplexing.
1.29 "Exchange Access" is As Defined in the Act.
1.30 "Exchange Message Record" or "EMR" means the standard used for
exchange of telecommunications message information among Telecommunications
Carriers for billable, nonbillable, sample, settlement and study data. EMR
format is contained in Bellcore Practice BR-010-200-010 CRIS Exchange Message
Record, a Bell Communications Research, Inc. ("Bellcore") document that defines
industry standards for Exchange Message Records.
1.31 "FCC" means the Federal Communications Commission.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.32 "FCC Regulations" means Title 47 of the Code of Federal Regulations.
1.33 "Fiber Meet" means an Interconnection architecture method whereby the
Parties physically Interconnect their networks via an optical fiber interface
(as opposed to an electrical interface) at a mutually agreed upon location.
1.34 HDSL is a digital loop transmission technology which permits the
transmission of up to 768 kbps simultaneously in both directions on a single
non-loaded, twisted copper pair or up to 1544 kbps simultaneously in both
directions on two non-loaded, twisted copper pairs.
1.35 "Incumbent Local Exchange Carrier" or "ILEC" is As Defined in the
Act. For purposes of this Agreement, BA is an Incumbent Local Exchange Carrier.
1.36 "Independent Telephone Company" or "ITC" means any entity other than
BA which, with respect to its operations within [STATE), is an Incumbent Local
Exchange Carrier.
1.37 "Information Services" is As Defined in the Act.
1.38 "Information Service Traffic" means Local Traffic or IntraLATA Toll
Traffic which originates on a Telephone Exchange Service line and which is
addressed to an information service provided over a Party's switched voice
information services platform (i.e., 976, 550, 540, 970, 940).
-----
1.39 "Inside Wire" or "Inside Wiring" means all wire, cable, terminals,
hardware, and other equipment or materials on the Customer's side of the Rate
Demarcation Point.
1.40 "Integrated Digital Loop Carrier" or "IDLC" means a subscriber loop
carrier system which integrates within the switch at a DS1 level that is twenty-
four (24) loop transmission paths combined into a 1.544 Mbps digital signal.
1.41 "Integrated Services Digital Network" or "ISDN" means a switched
network service that provides end-to-end digital connectivity for the
simultaneous transmission of voice and data. Basic Rate Interface-ISDN (BRI-
ISDN) provides for a digital transmission of two 64 Kbps bearer channels and one
16 Kbps data and signaling channel (2B+D). Primary Rate Interface-ISDN ("PRI-
ISDN") provides for digital transmission of twenty three (23) 64 kbps bearer
channels and one (1) 64 kpbs data and signaling channel (23 B+D).
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.42 "Interconnection" is As Described in the Act and refers to the
connection of separate pieces of equipment or transmission facilities within,
between, or among networks for the purpose of transmission and routing of
Telephone Exchange Service traffic and Exchange Access traffic.
1.43 "Interexchange Carrier" or "IXC" means a carrier that provides,
directly or indirectly, InterLATA or IntraLATA Telephone Toll Services.
1.44 "Interim Telecommunications Number Portability" or "INP" is As
Described in the Act.
1.45 "InterLATA Service" is As Defined in the Act.
1.46 "IntraLATA Toll Traffic" means those intraLATA calls that are not
defined as Local Traffic in this Agreement.
1.47 "Line Side" means an End Office Switch connection that provides
transmission, switching and optional features suitable for Customer connection
to the public switched network, including loop start supervision, ground start
supervision, and signaling for basic rate ISDN service.
1.48 "Local Access and Transport Area" or "LATA" is As Defined in the Act.
1.49 "Local Exchange Carrier" or "LEC" is As Defined in the Act. The
Parties to this Agreement are or will shortly become Local Exchange Carriers.
1.50 "Local Traffic", means traffic that is originated by a Customer of
one Party on that Party's network and terminates to a Customer of the other
Party on that other Party's network, within a given local calling area, or
expanded area service ("EAS") area, as defined in BA's effective Customer
tariffs, or, if the Commission has defined local calling areas applicable to all
LEC's, then as so defined by the Commission.
1.51 "Main Distribution Frame" or "MDF" means the ultimate point at which
outside plant facilities terminate within a Wire Center, for interconnection to
other telecommunications facilities within the Wire Center.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.52 "Meet-Point Billing" or "MPB" means the process whereby each Party
bills the appropriate tariffed rate for its portion of a jointly provided
Switched Exchange Access Service as agreed to in the Agreement for Switched
Access Meet Point Billing.
1.53 "Network Element" is As Defined in the Act.
1.54 "Network Interface Device" or "NID" means the BA-provided interface
terminating BA's telecommunications network on the property where the Customer's
service is located at a point determined by BA.
1.55 "North American Numbering Plan" or "NANP" means the numbering plan
used in the United States, Canada, Bermuda, Puerto Rico and certain Caribbean
Islands. The NANP format is a 10-digit number that consists of a 3-digit NPA
code (commonly referred to as the area code), followed by a 3-digit NXX code and
4-digit line number.
1.56 "Numbering Plan Area", or "NPA" is also sometimes referred to as an
area code. there are two general categories of NPAs. "Geographic NPAs" and
"Non-Geographic NPAs". A Geographic NPA is associated with a defined geographic
area, and all telephone numbers bearing such NPA are associated with services
provided within that geographic area. A Non-Geographic NPA, also known as a
"Service Access Code" or "SAC Code", is typically associated with a specialized
telecommunications service which may be provided across multiple geographic NPA
areas; 800, 900, 700, 500 and 888 are examples of Non-Geographic NPAs.
1.57 "Number Portability" or "NP" is As Defined in the Act.
1.58 "NXX", "NXX Code", or "End Office Code" means the three-digit switch
entity indicator (i.e. the first three digits of a seven digit telephone
number).
1.59 "Party" means either BA or MGC and "Parties" means BA and MGC.
1.60 "Permanent Number Portability" or "PNP" means the use of a database
or other technical solution that comports with regulations issued by the FCC to
provide Number Portability for all customers and service providers.
1.61 "Port Element" or "Port" means a termination on a Central Office
Switch that permits Customers to send or receive Telecommunications over the
public switched network, but does not include switch features or switching
functionality.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.62 "POT Bay" or "Point of Termination Bay" means the intermediate
distributing frame system which serves as the point of demarcation for
collocated Interconnection.
1.63 "Rate Center" or "Rate Center Area" or "Exchange Area" means the
geographic area that has been identified by a given LEC as being associated with
a particular NPA-NXX code which has been assigned to the LEC for its provision
of Telephone Exchange Services. The Rate Center Area is the exclusive
geographic area which the LEC has identified as the area within which it will
provide Telephone Exchange Services bearing the particular NPA-NXX designation
associated with the specific Rate Center Area. A "Rate Center Point" is the
finite geographic point identified by a specific V&H coordinate (as defined in
Bellcore Special Report SR-TSV-002275), located within the Rate Center Area and
used by that LEC to measure distance for the purpose of billing Customers for
distance sensitive Telephone Exchange Services and Toll Traffic. Rate Centers
will be identical for each Party until such time as MGC is permitted by an
appropriate regulatory body to create its own Rate Centers within an area.
1.64 "Rate Demarcation Point" means the point where network access
recurring charges and BA responsibility stop and beyond which Customer
responsibility begins, determined in accordance with FCC rules and BA standard
operating practices.
1.65 "Rating Point" or "Routing Point" means a specific geographic point
identified by a specific V&H coordinate. The Rating Point is used to route
inbound traffic to specified NPA-NXXs and to calculate mileage measurements for
the distance-sensitive transport charges of switched access services. Pursuant
to Bell Communications Research, Inc. ("Bellcore") Practice BR 795-100-100 (the
"Bellcore Practice"), the Rating Point may be an End Office location. or a "LEC
Consortium Point of Interconnection." Pursuant to that same Bellcore Practice,
each "LEC Consortium Point of Interconnection" shall be designated by a common
language location identifier ("CLLI") code with (x)KD in positions 9, 10, 11,
where (x) may be any alphanumeric A-Z or 0-9. The Rating Point must be located
within the LATA in which the corresponding NPA-NXX is located. However, the
Rating Point associated with each NPA-NXX need not be the same as the
corresponding Rate Center Point, nor must it be located within the corresponding
Rate Center Area, nor must there be a unique and separate Rating Point
corresponding to each unique and separate Rate Center.
1.66 "Reciprocal Compensation" is As Described in the Act, and refers to
the payment arrangements that recover costs incurred for the transport and
termination of Reciprocal
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
Compensation Traffic originating on one Party's network and terminating on the
other Party's network.
1.67 "Reciprocal Compensation Call" or "Reciprocal Compensation Traffic"
means a Telephone Exchange Service Call completed between the Parties, which
qualifies for Reciprocal Compensation pursuant to the terms of this Agreement
and prevailing Commission or FCC rules that may exist.
1.68 "Route Indexing" means the provision of Interim Number Portability
through the use of direct trunks provisioned between end offices of BA and MGC
over which inbound traffic to a ported number will be routed.
1.69 "Service Control Point" or "SCP" means a node in the Common Channel
Signaling network to which informational requests for service handling, such as
routing, are directed and processed. The SCP is a real time database system
that, based on a query from a service switching point and via a Signaling
Transfer Point, performs subscriber or application-specific service logic, and
then sends instructions back to the SSP on how to continue call processing.
1.70 "Signaling Transfer Point" or "STP" means a specialized switch that
provides SS7 network access and performs SS7 message routing and screening.
1.71 "Single Bill/Multiple Tariff' shall mean that one bill is rendered to
the IXC from all LECs who are jointly providing access service. A single bill
consists of all rate elements applicable to access services billed on one
statement of charges under one billing account number using each Party's
appropriate access tariffs. The bill could be rendered by or on behalf of,
either of the Parties.
1.72 "Strapping" means the act of installing a permanent connection
between a point of termination bay and a collocated interconnector's physical
Collocation node.
1.73 "Switched Access Detail Usage Data" means a category 1101XX record as
defined in the EMR Bellcore Practice BR-010-200-100.
1.74 "Switched Access Summary Usage Data" means a category 1150XX record
as defined in the EMR Bellcore Practice BR-010-200-010.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.75 "Switched Exchange Access Service" means the offering of
transmission or switching services to Telecommunications Carriers for the
purpose of the origination or termination of Telephone Toll Service. Switched
Exchange Access Services include but may not be limited to: Feature Group A,
Feature Group B, Feature Group D, 700 access, 800 access, 888 access, and 900
access.
1.76 "Switching Element" is the unbundled Network Element that provides
a CLEC the ability to use switching functionality in a BA End Office switch,
including all vertical services that are available on that switch, to provide
Telephone Exchange Service to its end user customer(s).
1.77 "Synchronous Optical Network" or "SONET" means an optical
interface standard that allows inter-networking of transmission products from
multiple vendors. The base transmission rate is 51.84 Mbps (OC-1/STS-1) and
higher rates are direct multiples of the base rate.
1.78 "Tariff' means any applicable federal or state tariff of a Party,
or standard agreement or other document that sets forth the generally available
terms and conditions, each as may be amended by the Party from time to time,
under which a Party offers a particular service, facility, or arrangement. A
Tariff shall not include BA's "Statement of Generally Available Terms and
Conditions for Interconnection, Unbundled Network Elements, Ancillary Services
and Resale of Telecommunications Services" which has been approved or is pending
approval by the Commission pursuant to Section 252(f) of the Communications Act
of 1934, 47 U.S.C. ss.252(f).
1.79 "Technically Feasible Point" is As Described in the Act.
1.80 "Telecommunications" is As Defined in the Act.
1.81 "Telecommunications Act" means the Telecommunications Act of
1996 and any rules and regulations promulgated thereunder.
1.82 "Telecommunications Carrier" is As Defined in the Act.
1.83 "Telecommunications Service" is As Defined in the Act.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.84 "Telephone Exchange Service" sometimes also referred to as
"Exchange Service," is As Defined in the Act. Telephone Exchange Service
generally provides the Customer with a telephonic connection to, and a unique
telephone number address on, the public switched telecommunications network, and
enables such Customer to place or receive calls to all other stations on the
public switched telecommunications network.
1.85 "Telephone Exchange Service Call" or "Telephone Exchange Service
Traffic" means a call completed between two Telephone Exchange Service Customers
of the Parties located in the same LATA, originated on one Party's network and
terminated on the other Party's network where such call was not carried by a
third Party as either a presubscribed call (1+) or a casual dialed (10XXX) or
(101XXX) call. Telephone Exchange Service Traffic is transported over Traffic
Exchange Trunks.
1.86 "Telephone Toll Service" (or "Toll Traffic"), is as defined in the
Act.
1.87 "Transit Traffic" means any traffic that originates from or
terminates at MGC's network, "transits" BA's network substantially unchanged,
and terminates to or originates from a third carrier's network, as the case may
be. "Transit Service" provides MGC with the ability to use its connection to a
BA Tandem for the delivery of calls which originate or terminate with MGC and
terminate or originate from a carrier other than BA, such as another CLEC, a LEC
other than BA, or a wireless carrier. In these cases, neither the originating
nor terminating Customer is a Customer of BA. This service is provided through
BA's Tandems and applies only where the terminating End Office of the third
carrier subtends the BA Tandem. "Transit Traffic" and "Transit Service" do not
include or apply to traffic that is subject to an effective Meet-Point Billing
arrangement.
1.88 "Trunk Side" means a Central Office Switch connection that is
capable of, and has been programmed to treat the circuit as, connecting to
another switching entity (e.g. another carrier's network). Trunk Side
connections offer those transmission and signaling features appropriate for the
connection of switching entities.
1.89 "Unbundled Local Loop" or "ULL" or "Loop" means a transmission
path that extends from the Main Distribution Frame, DSX panel or functionally
comparable piece of equipment in the Customer's serving End Office to the Rate
Demarcation Point (or network interface device (NID) if installed) in or at a
Customer's premises. The actual loop transmission facilities used to provide an
ULL may utilize any of several technologies.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
1.90 "Undefined Terms" means the Parties acknowledge that terms may
appear in this Agreement which are not defined and agree that any such terms
shall be construed in accordance with their customary usage in the
telecommunications industry as of the effective date of this Agreement, except
that any undefined term herein shall be interpreted in accordance with the
definition or its use in the FCC Interconnection Order and the FCC Further
Interconnection Order.
1.91 "Voice Grade" means either an analog signal of 300 to 3000 Hz or a
digital signal of 56/64 kilobits per second. When referring to digital voice
grade service (a 56/64 kbps channel), the terms "DS-0" or "sub-DS-1" may also be
used.
1.92 "Wire Center" means a building or portion thereof in which a Party
has the exclusive right of occupancy and which serves as Routing Point for
Switched Exchange Access Service.
200 INTERPRETATION AND CONSTRUCTION
2.1 All references to Sections, Exhibits and Schedules shall be deemed
to be references to Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. The headings used in this Agreement
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning of this Agreement. Unless the context shall
otherwise require, any reference to any agreement, other instrument (including
BA or other third Party offerings, guides or practices), statute, regulation,
rule or tariff is to such agreement, instrument, statute, regulation, or rule or
tariff as amended and supplemented from time to time (and, in the case of a
statute, regulation, rule or tariff, to any successor provision).
2.2 Subject to the terms set forth in Section 20 regarding rates and
charges, each Party hereby incorporates by reference those provisions of its
tariffs that govern the provision of any of the services or facilities provided
hereunder. If any provision of this Agreement and an applicable tariff cannot be
reasonably construed or interpreted to avoid conflict, the provision contained
in this Agreement shall prevail, provided that in all cases the more specific
shall prevail over the more general. If any provision contained in this main
body of the Agreement and any Schedule or Exhibit hereto cannot be reasonably
construed or interpreted to avoid conflict, the provision contained in this main
body of the Agreement shall prevail. The fact that a condition, right,
obligation, or other term appears in this Agreement but not in any such tariff
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
shall not be interpreted as, or be deemed grounds for finding, a conflict for
purposes of this Section 2.
300 SCOPE
This Agreement sets forth the terms and conditions under which MGC can
obtain access to Unbundled Network Elements, Resale and Interconnection from BA,
consistent with the rights and obligations set forth in the Act, in order for
MGC to provide Telecommunication Services to its own customers. MGC warrants and
represents that it is a Telecommunications Carrier ("TC") under the Act. Each
Party is solely responsible for the services it provides to its Customers and to
other Telecommunications Carriers.
400 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)
The types of Traffic to be exchanged under this Agreement shall be
Local Traffic, IntraLATA Toll (and InterLATA Toll, as applicable) Traffic,
Transit Traffic, Meet Point Billing Traffic, and Ancillary Traffic. Subject to
the terms and conditions of this Agreement, Interconnection of the Parties
facilities and equipment pursuant to this Section 4.0 for the transmission and
routing of Telephone Exchange Service traffic and Exchange Access traffic shall
be established on or before the corresponding "Interconnection Activation Date"
shown for each such LATA within the State of New York on Schedule 4.0. Schedule
4.0 may be revised and supplemented from time to time upon the mutual agreement
of the Parties to reflect additional or changed Interconnection Points in New
York State pursuant to subsection 4.4 by attaching one or more supplementary
addenda to such Schedule. Interconnection in the LATA shall be accomplished
through either (i) Collocation as provided in Section 13.0, (ii) a Fiber Meet as
provided in subsection 4.2, (iii) any other Interconnection method provided by
applicable tariff, law, rule or regulation, or (iv) any other Interconnection
method to which the Parties may agree.
4.1 Scope
4.1.1 Section 4 describes the architecture for interconnection of the
Parties' facilities and equipment over which the Parties shall configure the
following separate and distinct trunk groups:
Traffic Exchange Trunks for the transmission and routing of
terminating Local Traffic, Transit Traffic, translated LEC IntraLATA 800/888
traffic, IntraLATA Toll Traffic, and,
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
where agreed to between the Parties and as set forth in subsection 5.3.3 below,
InterLATA Toll Traffic between their respective Telephone Exchange Service
customers pursuant to Section 251(c)(2) of the Act, in accordance with Section 5
below;
Access Toll Connecting Trunks for the transmission and routing
of Exchange Access traffic, including translated InterLATA 800/888 traffic,
between MGC Telephone Exchange Service customers and purchasers of Switched
Exchange Access Service via a BA Tandem, pursuant to Section 251(c)(2) of the
Act, in accordance with Section 6 below;
Information Services Trunks for the transmission and routing
of terminating Information Services Traffic in accordance with Section 7 below;
BLV/BLVI Trunks for the transmission and routing of
terminating BLV/BLVI traffic, in accordance with Section 19 below;
911/E911 Trunks for the transmission and routing of
terminating E911/911 traffic, in accordance with Section 7 below;
Directory Assistance Trunks for the transmission and routing
of terminating directory assistance traffic, in accordance with Section 19.0
below;
Operator Services (IntraLATA call completion) Trunks for the
transmission and routing of terminating IntraLATA call completion traffic, in
accordance with Section 19.0 below;
Choke Trunks for traffic congestion and testing; and
Others as may be requested and agreed to by the Parties.
4.1.2 The Parties shall configure separate trunk groups (as described
in subsection 4.1.1 above) for traffic from MGC to BA, and for traffic from BA
to MGC, respectively; however, the trunk groups shall be equipped as two-way
trunks for testing purposes. As provided in Section 10 below, the Parties agree
to consider as part of the Joint Grooming Process the feasibility of combining
any of the separate trunk groups into a single two-way trunk group.
4.2 Physical Architecture
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
In each LATA identified on Schedule 4.0, MGC and BA shall utilize the
Interconnection points designated in such Schedule to configure a network
Interconnection arrangement under a joint network configuration and Grooming
Process ("Joint Grooming Process" as defined in Section 10.1). Both Parties will
endeavor to provision a diverse, reliable network that incorporates the most
practicable technologies.
4.2.1 Network architecture shall be defined under the
Joint Grooming Process.
4.2.1.1 The Parties shall establish physical
Interconnection points at the locations designated on Schedule
4.0. Points on the MGC network from which MGC will provide
transport and termination of traffic are designated as the MGC
Interconnection Points ("MGC-IP" or "[C]-IP"). Points on the
BA network from which BA will provide transport and
termination of traffic are designated as the BA
Interconnection Points ("BA-IP"). Additional Interconnection
points may be established by mutual agreement of both parties
at any technically feasible points consistent with Act.
4.2.1.2 Each Party will provide owned or leased
facilities to deliver traffic originated on its respective
networks to the designated Interconnection Points of the other
Party's network. The Party terminating the traffic will be
responsible for all transport and termination of calls beyond
the designated Interconnection point.
4.2.2 The Parties may implement one of the following
configurations as part of the Joint Grooming Process, unless an alternative plan
is mutually agreed to by both Parties.
(a) a jointly maintained SONET network, in
which each Party is responsible for the
procurement, installation, and maintenance
of mutually agreed-upon Optical Line
Terminating Multiplexer ("OLTM") equipment
at its respective premises. Additionally,
each Party will be responsible for the
installation and maintenance of one-half of
a fiber optic ring;
(b) Interconnection of networks at an optical
level via a Fiber Meet or other comparable
means.
4.3 Technical Specifications
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
4.3.1 MGC and BA shall work cooperatively to install and
maintain a reliable network. MGC and BA shall exchange appropriate information
(e.g., maintenance contact numbers, network information, information required to
comply with law enforcement and other security agencies of the Government and
such other information as the Parties shall mutually agree) to achieve this
desired reliability.
4.3.2 MGC and BA shall work cooperatively to apply sound
network management principles by invoking network management controls to
alleviate or to prevent congestion.
4.3.3 The publication "Bellcore Technical Publication
GR-342-CORE; High Capacity Digital Special Access Service, Transmission
Parameter Limits and Interface Combinations" describes the practices,
procedures, specifications and interfaces generally utilized by BA and is
referenced herein to assist the Parties in meeting their respective
Interconnection responsibilities related to electrical/optical interfaces.
4.4 Interconnection in Additional LATAs
4.4.1 If MGC determines to offer Telephone Exchange Services
in any other LATA in which BA also offers Telephone Exchange Services in New
York State, MGC shall provide written notice to BA of the need to establish
Interconnection in such LATA pursuant to this Agreement.
4.4.2 The notice provided in subsection 4.4.1 shall include
(i) the initial Rating Point MGC has designated in the new LATA; (ii) MGC's
requested Interconnection Activation Date; and (iii) a non-binding forecast of
MGC's trunking requirements.
4.4.3 Unless otherwise agreed by the Parties, the Parties
shall designate the Wire Center(s) MGC has identified as its initial Rating
Point(s) in the LATA as the MGC-IP(s) in that LATA and shall designate the BA
Tandem Office Wire Center within the LATA nearest to the MGC-IP (as measured in
airline miles utilizing the V&H coordinates method as defined in Bellcore
Special Report SR-TSV-002275) as the BA-IP in that LATA.
500 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT
TO SECTION 251(c)(2)
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5.1 Scope of Traffic
Section 5.0 prescribes parameters for trunk groups (the "Traffic
Exchange Trunks") to be effected over the Interconnections specified in Section
4.0 for the transmission and routing of Local Traffic, Transit Traffic,
translated LEC IntraLATA 800/888 traffic, InterLATA Toll Traffic (to the extent
applicable), and IntraLATA Toll Traffic between the Parties' respective
Telephone Exchange Service Customers.
5.2 Switching System Hierarchy
5.2.1 For purposes of this Section 5.0, each of the following
Central Office Switches shall be designated as a "Primary Switch":
(a) Each Tandem Office BA operates in the LATA;
(b) The initial switch MGC employs to provide Telephone
Exchange Service in the LATA;
(c) Any Tandem Office MGC may establish for provision
of Exchange Access in the LATA;
(d) Any additional switch MGC may subsequently employ
to provide Telephone Exchange Service in the LATA
which MGC may at its sole option designate as a
Primary Switch; provided that the total number of
MGC Primary Switches for a LATA may not exceed the
total number of BA Primary Switches for that LATA.
To the extent MGC chooses to designate any
additional switch as a Primary Switch, it shall
provide notice to BA of such designation at least
ninety (90) days in advance of the date on which
MGC activates such switch as a Primary Switch; and
(e) Any additional tandem switch BA may subsequently
employ to provide access and/or sector traffic
capacity within a LATA. Traffic destined to
sub-tending Secondary Switches routed via such a
tandem(s) would be determined by network
requirements and notice made available to all LECs
at least one hundred and eighty (180) days prior to
service introduction.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
5.2.2 For purposes of this Section 5.0, each of the following
Central Office Switches shall be designated as a "Secondary Switch".
(a) Each Central Office Switch operated by the Parties
which is not designated as a Primary Switch
pursuant to Section 5.2.1 shall be designated as a
"Secondary Switch".
(b) A geographically relevant End Office or functional
equivalent, at a technically feasible IP
established by one Party at the other Party's
request (collectively, a "Virtual End Office"). For
purposes of this Agreement, a "geographically
relevant" IP shall mean an IP that is located
within the same Rate Center Area as the NXX's to
which traffic is to be terminated are assigned, or,
with the mutual agreement of the Parties, an
existing and currently utilized IP within the LATA
but outside the applicable Rate Center Area. If
after sixty (60) days following said request, the
Parties have been unable to reach agreement on the
additional Interconnection Point(s), then either
Party may file a complaint with the Commission to
resolve such impasse or pursue any other remedy
available under law or equity.
5.2.3 For purposes of MGC routing traffic to BA, the
sub-tending arrangements between BA Primary Switches and BA Secondary Switches
shall be the same as the Tandem/End Office sub-tending arrangements which BA
maintains for the routing of its own or other carriers' traffic. For purposes of
BA routing traffic to MGC, the sub-tending arrangements between MGC Primary
Switches and MGC Secondary Switches shall be the same as the Tandem/End Office
sub-tending arrangements which MGC maintains for the routing of its own or other
carriers' traffic.
5.3 Trunk Group Architecture and Traffic Routing
The Parties shall jointly engineer and configure Traffic Exchange
Trunks over the physical Interconnection arrangements where such arrangements
exist for the transport and termination of Telephone Exchange Service Traffic as
follows:
5.3.1 The Parties shall each initially configure a separate
two-way trunk group as direct transmission path between each MGC Primary Switch
and each BA Primary Switch.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
5.3.2 Notwithstanding anything to the contrary in this Section
5.0, if the individual trunk group volumes between any two Central Office
Switches (whether Primary-Primary, Primary-Secondary, or Secondary-Secondary)
consistently exceed the blocking parameters established in the Joint Grooming
Process, the Parties will augment such trunk groups so as to achieve established
service objectives. Such augmentation shall be consistent with established
network design methods using modular trunk engineering techniques where
practical.
5.3.3 BA and MGC will allow each other to route their
intrastate and interstate switched access service traffic over the Traffic
Exchange Trunk Groups, pursuant to the rates, terms and conditions specified in
each Party's effective intrastate and interstate access tariffs or at Generally
available and prevailing rates, terms and conditions.
5.4 Signaling
Each Party will provide the other Party with access to its databases
and associated signaling necessary for the routine and completion of the other
Party's traffic in accordance with the following, provisions, and with Section
17.0 below:
5.4.1 Where available, CCS signaling shall be used by the
Parties to set up calls between the Parties' Telephone Exchange Service
networks. If CCS signaling is unavailable, MF ("Multi-Frequency") signaling
shall be used by the Parties. Each Party shall charge the other Party equal and
reciprocal rates for CCS signaling in accordance with applicable tariffs.
5.4.2 The publication "Bellcore Special Report SR-TSV-002275,
BOC Notes on the LEC Networks-Signaling" describes the practices, procedures and
specifications Generally utilized by BA for signaling, purposes and is
referenced herein to assist the Parties in meeting their respective
Interconnection responsibilities related to signaling.
5.4.3 The Parties will cooperate on the exchange of
Transactional Capabilities Application Part ("TCAP") messages to facilitate
interoperability of CCS-based features between their respective networks,
including all CLASS features and functions, to the extent each Party offers such
features and functions to its Customers. All CCS signaling parameters will be
provided including, calling Party number ("CPN"), originating line information
("OLI"), calling Party category and charge number.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
5.4.4 Upon request, each Party shall provide trunk groups
where available that are configured utilizing the B8ZS ESF protocol for 64 Kbps
clear channel transmission to allow for ISDN interoperability between the
Parties' respective networks.
5.5 Grades of Service
The Parties shall engineer and shall jointly monitor and enhance all
trunk groups consistent with the Joint Grooming Process as set forth in Section
10.
5.6 Measurement and Billing
5.6.1 For billing purposes, each Party shall pass Calling
Party Number ("CPN") information on each call carried over the Traffic Exchange
Trunks; provided, however, that so long as the percentage of calls passed with
CPN is greater than ninety percent (90%), all calls exchanged without CPN
information shall be billed as either Local Traffic or IntraLATA Toll Traffic in
direct proportion to the minutes of use of calls exchanged with CPN information.
5.6.2 Measurement of billing minutes (except for originating
800/888 calls) shall be in actual conversation seconds. Measurement of billing
minutes for originating 800/888 calls shall be in accordance with applicable
tariffs.
5.6.3 Where CPN is not available in a LATA for greater than
ten percent (10%) of the traffic, the Party sending the traffic shall provide
factors to determine the jurisdiction, as well as local vs. toll distinction, of
the traffic. Such factors shall be supported by call record details that will be
made available for review upon request when a Party is passing CPN but the
receiving Party is not properly receiving or recording the information. The
Parties shall cooperatively work to correctly identify the traffic, and
establish a mutually agreeable mechanism that will prevent improperly rated
traffic. Notwithstanding this, if any improperly rated traffic occurs, the
Parties agree to reconcile it.
5.7 Reciprocal Compensation Arrangements -- Section 251(b)(5)
5.7.1 Reciprocal Compensation only applies to the transport
and termination of Reciprocal Compensation Traffic billable by BA or MGC which a
Telephone Exchange Service Customer originates on BA's or MGC's network for
termination on the other Party's network within the same LATA except as provided
in Section 5.7.6 below.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
5.7.2 The Parties shall compensate each other for transport
and termination of Reciprocal Compensation Traffic in an equal and symmetrical
manner for the application of rates as provided in the Pricing Schedule (Exhibit
A hereto).These rates are to be applied at the MGC-IP for traffic delivered by
BA, and at the BA-IP for traffic delivered by MGC. Tandem rates will be applied
for traffic terminated to a Primary Switch; End Office rates will be applied for
traffic terminated to a Secondary Switch. No additional charges, including port
or transport charges, shall apply for the termination of Reciprocal Compensation
Traffic delivered to the MGC-IP or the BA-IP. When Reciprocal Compensation
Traffic is terminated over the same trunks as Switched Exchange Access Service,
any port or transport or other applicable access charges related to the Switched
Exchange Access Service shall be prorated to be applied only to such other
Switched Exchange Access Service.
5.7.3 The Reciprocal Compensation arrangements set forth in
this Agreement are not applicable to Switched Exchange Access Service or to any
other IntraLATA or InterLATA calls originated on a third party carrier's network
on a 1+ presubscribed basis or a casual dialed (10XXX or 101XXXX) basis. All
Switched Exchange Access Service and all Toll Traffic shall continue to be
governed by the terms and conditions of the applicable federal and state Tariffs
or the terms and conditions of section 6.3, if applicable. Similarly, the
Parties agree that the issue of what, if any, compensation is applicable to
traffic handed off from one Party to the other Party, within a BA local calling
area (or other calling area otherwise applicable for Reciprocal Compensation),
for delivery to an Internet Service Provider (ISP) for carriage over the
Internet is currently pending before the FCC. Until such time as the issue is
resolved by the FCC or by an applicable order of the Commission or Court with
jurisdiction over the appropriate compensation for such traffic exchange, the
Parties agree that the Reciprocal Compensation arrangements contained in this
subsection 5.7 shall not apply to such traffic. To the extent that either Party
is unable to measure the volume of such traffic, the Parties agree to work
cooperatively to estimate such traffic volume. Unless otherwise provided under
Applicable Law, Reciprocal Compensation arrangements shall apply to IntraLATA
Toll Traffic originated on one Party's network and delivered by that Party to
the other Party's network.
5.7.4 The rates for termination of Reciprocal Compensation
Traffic are set forth in Exhibit A which is incorporated by reference herein.
5.7.5 The designation of Traffic as Local or Toll for purposes
of compensation shall be based on the actual originating and terminating points
of the complete end-to-end call, regardless of the entities involved in carrying
any segment of the call.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
5.7.6 Compensation for transport and termination of all
traffic which is subject to performance of INP by one Party for the other Party
pursuant to Section 14.0 shall be as specified in subsection 14.6.
5.7.7 Each Party reserves the right to measure and audit all
Reciprocal Compensation Traffic, up to a maximum of two audits per calendar
year, to ensure that proper rates are being applied appropriately, provided,
however, that either Party shall have the right to conduct additional audit(s)
if the preceding audit disclosed material errors or discrepancies. Each Party
agrees to provide the necessary Reciprocal Compensation Traffic data or permit
the other Party's recording equipment to be installed for sampling purposes in
conjunction with any such audit.
5.7.8 When either Party delivers seven (7) or ten (10) digit
translated IntraLATA toll-free service access codes (e.g., 800/888) service to
the other Party for termination, the originating Party shall provide the
terminating Party with billing records in industry standard format (EMR) if
required by the terminating Party. The originating Party may bill the
terminating, Party for the delivery of the traffic at local reciprocal
compensation rates. The terminating Party may not bill the originating Party
reciprocal compensation under this Agreement. The Party that is providing the
toll-free service access codes (e.g. 800/888) service shall pay the database
inquiry charge per the Pricing Schedule to the Party that performed the database
inquiry.
600 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO
251(c)(2)
6.1 Scope of Traffic
Section 6.0 prescribes parameters for certain trunk groups ("Access
Toll Connecting Trunks") to be established over the Interconnections specified
in Section 4.0 for the transmission and routing of Exchange Access traffic
between MGC's Telephone Exchange Service Customers and Interexchange Carriers
("IXC's").
6.2 Trunk Group Architecture and Traffic Routing
6.2.1 The Parties shall jointly establish Access Toll
Connecting Trunks by which they will jointly provide tandem-transported Switched
Exchange Access Services to
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
Interexchange Carriers to enable such Interexchange Carriers to originate and
terminate traffic from/to MGC's Customers.
6.2.2 Access Toll Connecting Trunks shall be used solely for
the transmission and routing of Exchange Access to allow MGC's Customers to
connect to or be connected to the interexchange trunks of any Interexchange
Carrier which is connected to a BA Tandem.
6.2.3 The Access Toll Connecting Trunks shall be two-way
trunks connecting an End Office Switch MGC utilizes to provide Telephone
Exchange Service and Switched Exchange Access in a given LATA to a Tandem Switch
BA utilizes to provide Exchange Access in such LATA.
6.2.4 The Parties shall jointly determine which BA Tandem(s)
will be subtended by each MGC End Office Switch. MGC's end office switch shall
sub-tend the BA Tandem that would have served the same rate center on BA's
network.
6.3 Meet-Point Billing Arrangements
6.3.1 Meet-Point Billing arrangements between the Parties for
jointly-provided Switched Exchange Access Services on Access Toll Connecting
Trunks will be governed by the terms and conditions of a mutually agreeable
arrangement which the Parties will work to develop.
6.3.2 With respect to the Meet Point Billing arrangements,
until and unless changed by the FCC on a going forward basis, MGC shall retain
one hundred percent (100%) of the Residual Interconnection Charge in instances
in which MGC provides the end office switching.
700 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
The following provisions shall apply only to MGC-originated Information
Services Traffic directed to an information services platform connected to BA's
network. At such time as MGC connects information services platforms to its
network, the Parties shall agree upon a comparable arrangement for BA-originated
Information Services Traffic. The Information Services Traffic subject to the
following provisions is switched voice traffic, delivered to service
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
providers who offer recorded announcement information or open discussion
information programs to the general public; it is not Internet traffic.
7.1.1 MGC shall have the option to route Information Services
Traffic that originates on its own network to the appropriate information
services platform(s) connected to BA's network. In the event MGC exercises such
option, MGC will establish a dedicated trunk group to the BA information
services serving switch. This trunk group will be utilized to allow MGC to route
information service traffic originated on its network to BA.
Where MGC serves a Customer through the purchase of a BA unbundled Port
Element, information service traffic from that Customer may be routed over BA
information service trunks on a shared basis.
7.1.2 Nothing in this Agreement shall restrict either Party
from offering or obviate either Party's obligations, if any, under Applicable
Laws, to offer to its Telephone Exchange Service Customers the ability to block
the completion of Information Service Traffic.
7.1.3 For calls to an "Information Mass Announcement Service"
("IMAS"), which service is only available in the New York Metro LATA (LATA 132),
MGC shall bill and collect the information services provider charges as defined
in the existing New York PSC No. 900 Tariff, as may be amended from time to
time. BA will bill MGC for such charges less the Information Services Billing
and Collection fee set forth in Exhibit A. MGC shall pay BA in full regardless
of uncollectible charges to its own Customers. BA may request recorded call
information from MGC, to be delivered in unrated EMR format via electronic file
transfer or other medium mutually agreeable to the two Parties, at the customer
usage detail charges specified in Exhibit A. This arrangement shall apply
whether MGC serves its customer from switching facilities outside the BA
network, or from a BA unbundled Port Element.
7.1.4 For calls to variable rated information services (e.g.,
NXX 550, 540, 976, 970, 940 as applicable), the Parties shall agree to implement
either of two separate billing arrangements, as set forth in Schedule 7.1.4.
Under either arrangement, MGC shall bill and collect information services
provider charges from its Customers. BA shall charge MGC, and the Parties shall
exchange call detail information and handle adjustments, according to the terms
set forth in the agreed upon billing arrangement, at customer usage detail rates
specified in Exhibit A. Applicable information shall be provided in as timely a
fashion as practical in order to facilitate record review and reflect actual
prices set by the individual information services providers. The same billing
arrangements shall apply whether MGC serves its Customer from
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
switching facilities outside the BA network, or from BA unbundled Local
Switching Elements, and agreement to mutually support one or the other billing
arrangement shall precede interconnection of the MGC network to the appropriate
information services platform(s) connected to BA's network. BA may require
reasonable demonstration, as defined in the applicable billing arrangement, that
the agreed upon arrangement has been implemented by MGC prior to establishing
such interconnection.
7.1.5 Where BA agrees to accept adjustments from MGC for calls
originated by MGC Customers to information services platform(s) connected to
BA's network, MGC shall follow the same policy in allowing adjustments to its
Customers as BA follows with its own Customers. MGC shall provide to BA
sufficient information regarding uncollectibles and Customer adjustments to
allow BA to pass through the adjustments to the information services provider,
and BA shall pass through such adjustments. However, if the information services
provider disputes such adjustments and refuses to accept such adjustments, MGC
shall reimburse BA for all such disputed adjustments. Final resolution regarding
all disputed adjustments shall be solely between MGC and the information
services provider.
7.1.6 The Information Services Traffic addressed herein does
not include 555 traffic or similar traffic with AIN service interfaces, which
traffic shall be subject to separate arrangements between the Parties.
7.2 Tandem Transit Service ("Transit Service")
7.2.1 "Transit Service" means the delivery of certain traffic
between MGC and another Local Exchange Carrier by BA over the Telephone Exchange
Service Trunks, where both carriers' End Offices subtend a BA tandem. The
following traffic types will be delivered: (i) Local Traffic or IntraLATA Toll
originated from MGC to such LEC and (ii) Local or IntraLATA Toll Traffic
originated from such LEC and terminated to MGC where BA carries such traffic
pursuant to the Commission's primary toll carrier plan or other similar plan.
7.2.2 Subject to Section 7.2.4, the Parties shall
compensate each other for Transit Service as follows:
(a MGC shall pay BA for Local Traffic that MGC
originates over the Transit Service at the rate
specified in Pricing Schedule plus any additional
charges or costs such terminating LEC imposes or
levies on
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
BA for the delivery or termination of such traffic,
including any switched access charges; and
(b BA shall pay MGC for Local, InterLATA, or IntraLATA
Toll Traffic terminated to MGC from such LEC at the
appropriate reciprocal compensation rates described
in Section 5.7, InterLATA access rates, or (where
BA delivers such traffic pursuant to the
Commission's primary toll carrier plan or other
similar plan) at MGC's applicable switched access
rates or local termination rate, whichever is
appropriate.
7.2.3 BA expects that all networks involved in Transit traffic
will deliver each call to each involved network with CCS and the appropriate
Transactional Capabilities Application Part ("TCAP") message to facilitate full
interoperability of those CLASS Features supported by BA and billing functions.
In all cases, each Party shall follow the Exchange Message Record ("EMR")
standard and exchange records between the Parties and [?] with the terminating
carrier to facilitate the billing process to the originating network.
7.2.4 Each Party shall exercise all reasonable efforts to
enter into a reciprocal local traffic exchange arrangement (either via written
agreement or mutual tariffs) with any wireless carrier, ITC, CLEC or other LEC
to which it sends, or from which it receives, local traffic that transits the
other Party's facilities over Traffic Exchange Trunks. Each Party will, upon
request, provide the other Party with all reasonable cooperation and assistance
in obtaining such arrangements. In addition, neither Party shall take any
actions to prevent the other Party from entering into a direct and reciprocal
local traffic exchange arrangement (either via written agreement or mutual
tariffs) with any wireless carrier, ITC, CLEC, or other LEC to which it sends,
or from which it receives, local traffic that does not utilize the Transit
Service of the first Party. The Parties agree to work cooperatively in
appropriate industry fora to promote the adoption of reasonable industry
guidelines relating to Transit Traffic.
7.3 911/E911 Arrangements
7.3.1 MGC will interconnect to the BA 911/E911 selective
router or 911 Tandem Offices, as appropriate, that serve the areas in which MGC
provides exchange services, for the provision of 911/E911 services and for
access to all sub-tending Public Safety Answering Points ("PSAP"). BA will
provide MGC with the appropriate CLLI codes and specifications of the tandem
serving area.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
7.3.2 Path and route diverse Interconnections for 911/E911
shall be made at the MGC-IP, the BA-IP, or other points as necessary and
mutually agreed, and as required by law or regulation.
7.3.3 BA will provide MGC with an electronic interface through
which MGC shall input and provide a daily update of 911/E911 database
information related to appropriate MGC customers. BA will provide, as permitted
by the PSC, MGC with the Master Street Address Guide ("MSAG") so that MGC can
ensure the accuracy of the data transfer. Additionally, BA shall assist MGC in
identifying the appropriate person in each municipality for the purpose of
obtaining the ten-digit Subscriber number of each PSAP.
7.3.4 BA and MGC will use their best efforts to facilitate the
prompt, robust, reliable and efficient Interconnection of MGC systems to the
911/E911 platforms.
7.3.5 BA and MGC will work cooperatively to arrange meetings
with PSAPs to answer any technical questions the PSAPS, or county or municipal
coordinators may have regarding the 911/E911 arrangements.
7.3.6 MGC will compensate BA for connections to its 911/E911
pursuant to Exhibit A.
7.3.7 MGC comply with all applicable rules and regulations
pertaining to the provision of 911/E911 services in the State of New York.
8.0 NUMBER RESOURCES, RATE CENTERS AND RATING POINTS
8.1 Nothing in this Agreement shall be construed to limit or otherwise
adversely affect in any manner either Party's right to employ or to request and
be assigned any Central Office (NXX) Codes pursuant to the Central Office Code
Assignment Guidelines, as may be amended from time to time, or to establish, by
Tariff or otherwise, Rate Centers and Rating Points corresponding to such NXX
codes. Until such time as number administration is provided by a third party, BA
shall provide MGC access to telephone numbers by assigning NXX codes to MGC in
accordance with such Assignment Guidelines.
8.2 It shall be the responsibility of each Party to program and update
its own switches and network systems in accordance with the Local Exchange
Routing Guide ("LERG") in order to recognize and route traffic to the other
Party's assigned NXX codes at all times. Neither Party
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shall impose any fees or charges whatsoever on the other Party for such
activities, except as expressly set forth in this Agreement.
8.3 Unless mandated otherwise by a Commission order, the Rate Center
Areas will be the same for each Party. During the term of this Agreement, MGC
shall adopt the Rate Center Areas and Rate Center Points that the Commission has
approved for BA, in all areas where BA and MGC service areas overlap, and MGC
shall assign whole NPA-NXX codes to each Rate Center unless the LEC industry
adopts alternative methods of utilizing NXXs in the manner adopted by the NANP.
8.4 MGC will also designate a Rating Point for each assigned NXX code.
MGC shall designate one location for each Rate Center Area as the Rating Point
for the NPA-NXXs associated with that Area and such Rating Point shall be within
the same LATA as the Rate Center Area but not necessarily within the Rate Center
Area itself
8.5 Notwithstanding anything to the contrary contained herein, nothing
in this Agreement is intended to, and nothing, in this Agreement shall be
construed to, in any way constrain MGC's choices regarding the size of the local
calling area(s) that MGC may establish for its Customers, which local calling
areas may be larger than, smaller than, or identical to, BA's local calling
areas.
9.0 NETWORK MAINTENANCE AND MANAGEMENT; OUTAGES
9.1 Cooperation
The Parties will work cooperatively to install and maintain a reliable
network. MGC and BA will exchange appropriate information (e.g., maintenance
contact numbers, escalation procedures, network information, information
required to comply with law enforcement and other security agencies of the
Government) to achieve this desired reliability. In addition, the Parties will
work cooperatively to apply sound network management principles to alleviate or
to prevent congestion.
9.2 Responsibility for Following Standards
Each Party recognizes a responsibility to follow the standards that may
be agreed to between the Parties and to employ characteristics and methods of
operation that will not interfere
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with or impair the service or any facilities of the other or any third parties
connected with or involved directly in the network of the other.
9.3 Interference or Impairment
If Bell Atlantic reasonably determines that the characteristics and
methods of operation used by MGC will or may interfere with or impair its
provision of services, BA shall have the right to discontinue service subject,
however, to the following:
9.3.1 BA shall have given MGC at least ten (10) days' prior
written notice of the interference or impairment or potential interference or
impairment and the need to correct the condition within said time period.
9.3.2 BA shall have concurrently provided a copy of the notice
provided to MGC under (9.3.1) above to the appropriate federal and/or state
regulatory bodies.
9.3.3 Notice in accord with subsections 9.3.1 and 9.3.2 above
shall not be required in emergencies and BA may immediately discontinue service
if reasonably necessary to meet its obligations. In such case, however, BA shall
use all reasonable means to notify MGC and the appropriate federal and/or state
regulatory bodies.
9.3.4 Upon correction of the interference or impairment, BA
will promptly renew service to MGC. During such period of discontinuance, there
will be no compensation or credit allowance by BA to MGC for interruptions.
9.4 Repeated or Willful Noncompliance
The Interconnection, unbundled Network Elements, and services provided
hereunder may be discontinued by either Party upon thirty (30) days' written
notice to the other for repeated or willful violation of and/or a refusal to
comply with this Agreement in any material respect. The Party discontinuing will
notify the appropriate federal and/or state regulatory bodies concurrently with
the notice to the other Party of the prospective discontinuance.
9.5 Outage Repair Standard
In the event of an outage or trouble in any arrangement, facility, or
service being provided by a Party hereunder, the providing Party will follow
procedures for isolating and clearing the outage or trouble that are no less
favorable than those that apply to comparable arrangements,
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facilities, or services being provided by the providing Party to any other
carrier whose network is connected to that of the providing Party. MGC and BA
may agree to modify those procedures from time to time based on their experience
with comparable Interconnection arrangements with other carriers.
9.6 Notice of Changes -- Section 251(c)(5)
If a Party makes a change in the information necessary for the
transmission and routing of services using that Party's network, or any other
change in its network which it believes will materially affect the
inter-operability of its network with the other Party's network, the Party
making the change shall provide at least ninety (90) days' advance written
notice of such change to the other Party. In addition, the Parties will comply
with the Network Disclosure rules adopted by the FCC in CC Docket No. 86-79 as
may be amended from time to time.
9.7 Fraud
The Parties shall work cooperatively to minimize fraud associated with
third-number billed calls, calling card calls, and any other services related to
this Agreement.
10.0 JOINT NETWORK CONFIGURATION AND GROOMING PROCESS; AND INSTALLATION,
MAINTENANCE, TESTING AND REPAIR.
10.1 Joint Network Configuration and Grooming Process
Upon request of either Party, the Parties shall jointly develop an
implementation and grooming process (the "Joint Grooming Process" or "Joint
Process") which may define and detail, inter alia,
(a agreement on Physical Architecture consistent with the
guidelines defined in Section 4.0;
(b standards to ensure that Interconnection trunk groups
experience a grade of service, availability and quality which
is comparable to that achieved on interoffice trunks within
BA's network and in accord with all appropriate relevant
industry-accepted quality, reliability and availability
standards;
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(c the respective duties and responsibilities of the Parties with
respect to the administration and maintenance of the trunk
groups, including but not limited to standards and procedures
for notification and discoveries of trunk disconnects;
(d disaster recovery provision escalations;
(e additional technically feasible IP(s) in a LATA as provided in
Section 4.0 above; and
(f such other matters as the Parties may agree, including, e.g.,
End Office to End Office high usage trunks as good engineering
practices may dictate.
The initial mutual Interconnection is not dependent upon completion of the Joint
Grooming Process.
10.2 Installation, Maintenance, Testing and Repair
Unless otherwise agreed to by the Parties, Interconnection shall be
provided at parity. For purposes of this Agreement, a Party's obligation to
provide parity shall be in accordance with Applicable Laws. If either Party is
unable to fulfill its obligations under this subsection 10.2, it shall notify
the other Party of its inability to do so and will negotiate alternative
intervals in good faith. The Parties agree that the standards to be used by each
Party for isolating and clearing any disconnections and/or other outages or
troubles shall be at parity.
10.3 Network Reliability Council
The Parties will carefully review the Network Reliability Council's
recommendations and, as part of the Joint Grooming Plan, implement such
recommendations where technically and economically feasible pursuant to the
NYPSC Order in Case 96-C-0917, released December 2, 1996.
10.4 Forecasting, Requirements for Trunk Provisioning
Within ninety (90) days of executing this Agreement, each Party shall
provide the other Party a one (1) year traffic forecast. This initial forecast
will provide the amount of traffic to be delivered to BA over each of the
Traffic Exchange Trunk groups over the next four (4) quarters. The forecast
shall be updated and provided to BA on an as-needed but no less frequently than
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
quarterly. All forecasts shall include Access Carrier Terminal Location (ACTL),
traffic type (local/toll, operator services, 911, etc.), code (identifies trunk
group), A locations/Z location (CLLI codes for MGC-IPs and BA-IPs, interface
type (e.g., DS1), and trunks in service each year (cumulative).
10.4.1 Trunk Provisioning Pursuant to Forecasts. Because BA's
trunking requirements will be dependent on the Customer segments and service
segments within Customer segments to whom MGC decides to market its services, BA
will be dependent on MGC to provide accurate trunk forecasts for both inbound
(from BA) and outbound (from MGC) traffic. BA will, as an initial matter and
upon request, provide the same number of trunks to terminate local traffic to
MGC as MGC provides to terminate local traffic to BA, unless MGC expressly
identifies particular situations that are expected to produce traffic that is
substantially skewed in either the inbound or outbound direction, in which case
BA will provide the number of trunks MGC suggests; provided, however, that in
all cases BA's provision of the forecasted number of trunks to MGC is
conditioned on the following: that such forecast is based on reasonable
engineering criteria, there are no capacity constraints, and MGC's previous
forecasts have proven to be reliable and accurate.
10.4.2 Monitoring and Adjusting Forecasts. BA will, for ninety
(90) days, monitor traffic on each trunk group that it establishes at MGC's
suggestion or request pursuant to the procedures identified in subsection 10.4.1
above. At the end of such ninety (90) day period, BA may disconnect trunks that,
based on reasonable engineering criteria and capacity constraints, are not
warranted by the actual traffic volume experienced. If, after such initial
ninety (90) day period for a trunk group, BA determines that any trunks in the
trunk group in excess of four (4) DS-1s are not warranted by actual traffic
volumes (considering engineering criteria for busy hour CCS and blocking,
percentages), then BA may hold MGC financially responsible for the excess
facilities. In subsequent periods, BA may also monitor traffic for ninety (90)
days on additional trunk groups that MGC suggests or requests BA to establish.
If, after any such (90) day period, BA determines that any trunks in the trunk
group are not warranted by actual traffic volumes (considering engineering
criteria for busy hour call seconds and blocking, percentages), then BA may hold
MGC financially responsible for the excess facilities. At any time during the
relevant ninety (90) day period, MGC may request that BA disconnect trunks to
meet a revised forecast. In such instances, BA may hold MGC financially
responsible for the disconnected trunks retroactive to the start of the ninety
(90) day period through the date such trunks are disconnected.
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10.4.3 Reciprocal Responsibility. To the extent that BA
requires MGC to install trunks for delivery of traffic to BA, MGC may apply the
same procedures with respect to BA's trunking requirements.
10.5 Demand Management Forecasts
10.5.1 MGC will furnish BA with good faith demand management
forecasts to enable BA to effectively plan its network infrastructure and work
force levels to accommodate anticipated MGC demand for BA services and products.
Such forecasts will describe MGC's expected needs for service volumes, and
timeframes for service deployment, by wire center. MGC agrees to provide such
forecasts to BA thirty (30) days following the Effective Date, with updates to
follow every six months thereafter. BA agrees that such forecasts shall be
subject to the confidentiality provisions defined in subsection 29.4 below, and
that such Information will only be used by BA to provide Interconnection
pursuant to this Agreement.
11.0 UNBUNDLED ACCESS -- SECTION 251(c)(3)
To the extent required of each Party by Section 251 of the Act, each
Party shall offer to the other Party nondiscriminatory access to Network
Elements on an unbundled basis at any technically feasible point. BA shall
unbundle and separately price and offer Network Elements such that MGC will be
able to lease and interconnect to whichever of the Network Elements MGC
requires, and to allow MGC to combine the BA-provided elements with any
facilities and services that MGC may itself provide, except that MGC shall not
recombine Network Elements purchased from BA for use as a substitute for the
purchase at wholesale rates of Telecommunications Services that BA provides
unless otherwise mandated by the FCC or the Commission or agreed to by BA with
other carriers. Any combination by MGC of unbundled Network Elements purchased
from BA shall be through a Collocation arrangement pursuant to Section 13.0.
11.1 Available Network Elements
At the request of MGC, BA shall provide MGC access to the following
unbundled Network Elements in accordance with the requirements of the FCC
Regulations:
11.1.1 Local Loops, as set forth in subsection 11.2;
11.1.2 The Network Interface Device;
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11.1.3 Switching Capability, as set forth in subsection
11.3;
11.1.4 Interoffice Transmission Facilities, as set forth
in subsection 11.4;
11.1.5 Signaling Links and Call-Related Databases, as set
forth in subsection 5.4 and Section 17;
11.1.6 Operations Support Systems, as set forth in
subsection 11.5:
11.1.7 Operator Services and Direction, Assistance, as set
forth in Section 19;
and
11.1.8 such other Network Elements in accordance with
subsection 11.7 below.
11.2 Unbundled Local Loop ("ULL") Types
Subject to subsection 11.7, BA shall allow MGC to access the following
Unbundled Local Loop ("ULL") types unbundled from local switching and local
transport in accordance with the terms and conditions set forth in this
subsection 11.2.
11.2.1 "2-Wire Analog Voice Grade ULL" or "Analog 2W" which
support analog transmission of 300-3000 Hz, repeat link start, link reverse
battery, or ground start seizure and disconnect in one direction (toward the End
Office Switch), and repeat ringing in the other direction (toward the Customer).
Analog 2W include Loops sufficient for the provision of PBX trunks, pay
telephone lines and electronic key system lines.
11.2.2 "4-Wire Analog, Voice Grade ULL" or "Analog 4W" which
support transmission of voice grade signals using separate transmit and receive
paths and terminate in a 4-wire electrical interface.
11.2.3 "2-Wire ISDN Digital Grade ULL" or "BRI ISDN" (Premium
Link) which support digital transmission of two 64 Kbps bearer channels and one
16 Kbps data channel. BRI ISDN is a 2B+D Basic Rate Interface-Integrated
Services Digital Network (BRI-ISDN) Loop which will meet national ISDN standards
and conform to ANSI T1.601-1992 & TlEl.4 90-004R3).
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
11.2.4 2-Wire ADSL-Compatible ULL or ADSL 2W is a 2-wire,
non-loaded, twisted copper pair that meets revised resistance design or carrier
serving area design guidelines. The upstream and downstream ADSL power spectral
density masks and dc line power limits in BA TR 72575, Issue 2 must be met.
ADSL-compatible local loops are subject to availability.
11.2.5 2-Wire HDSL-Compatible ULL or HDSL 2W consists of a
single 2-wire, non-loaded, twisted copper pair that meets the carrier serving
area design criteria. The HDSL power spectral density mask and dc line power
limits referenced in BA TR 72575, Issue 2 must be met. 2-Wire HDSL-compatible
local loops are subject to availability.
11.2.6 4-Wire HDSL-Compatible ULL or HDSL 4W consists of two
2-wire, non-loaded, twisted copper pairs that meet the carrier serving area
design criteria. The HDSL power spectral density mask and dc line power limits
referenced in BA TR 72575, Issue 2 must be met. 4-Wire HDSL-compatible local
loops are subject to availability.
11.2.7 "4-Wire DS-1-compatible ULL" (Digital Grade Loop)
provides a channel which provides 1.544 Mbps digital transmission path between a
Customer premises and a MGC Collocation node at a BA central office, and is
capable of operating in a full duplex, time division (digital) multiplexing
mode. A DS-1 Digital Grade Loop provides transmission capacity equivalent to 24
voice grade channels with associated signaling, twenty-four 56 Kbps digital
channels when in band signaling is provided or twenty-four 64 Kbps channels with
the selection of the Clear Channel signaling option.
11.2.8 BA will make Analog 2-Wire ULLS, BRI ISDN ULLS, Analog
4-Wire ULLs and 4-Wire DS-1-compatible ULLs available for purchase by MGC at any
time after the Effective Date.
11.2.9 BA will make HDSL 4-Wire, HDSL 2-Wire, and ADSL 2-Wire
ULLs available to MGC no later than the date on which it makes such ULLs
commercially available to any other Telecommunications Carrier in New York
State. The Parties shall amend Exhibit A to add the appropriate rates and
charges.
11.3 Unbundled Switching Elements
BA shall make available to MGC the local Switching Element and tandem
Switching Element unbundled from transport, local loop transmission, or other
services in accordance with
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
the terms and conditions of and at the rates specified in BA's New York PSC No.
916 Tariff, as amended from time to time.
11.4 Unbundled Inter Office Facilities
BA shall provide MGC Inter Office Facilities ("IOF"), unbundled from
switching, unbundled interoffice facilities, and other services as required by
Applicable Law, at the rates, terms and conditions set forth in BA's NYPSC No.
916 Tariff, as amended from time to time.
11.5 Operations Support Systems
BA shall provide MGC with access via electronic interfaces to databases
required for pre-ordering, ordering, provisioning, maintenance and repair, and
billing as soon as practicable.
11.6 Limitations on Unbundled Access
11.6.1 BA shall only be required to provide ULLs and Ports
where such Loops and Ports are available.
11.6.2 MGC shall access BA's unbundled Network Elements
specifically identified in this Agreement via Collocation in accordance with
Section 13 at the BA Wire Center where those elements exist, and each ULL or
Port shall, in the case of Collocation, be delivered to MGC's Collocation node
by means of a Cross Connection or Strapping.
11.6.3 BA shall provide MGC access to its Unbundled Local
Loops at each of BA's Wire Centers for loops terminating in that Wire Center. In
addition, if MGC orders one or more ULL provisioned via Integrated Digital Link
Carrier or Remote Switching technology deployed as a ULL concentrator, BA shall,
where available, move the requested ULL(s) to a spare, existing physical ULL at
no additional charge to MGC. If, however, no spare physical ULL is available, BA
shall within three (3) Business days of MGC's request notify MGC of the lack of
available facilities. MGC may then at its discretion make a Network Element Bona
Fide Request to BA to provide the unbundled Local Loop through the
demultiplexing of the integrated digitized ULL(s). MGC may also make a Network
Element Bona Fide Request for access to Unbundled Local Loops at the ULL
concentration site point. Notwithstanding anything to the contrary in this
Agreement, standard provisioning intervals shall not apply to ULL provided under
this subsection 11.6.3.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
11.6.4 If MGC orders a ULL type and the distance requested on
such ULL exceeds the transmission characteristics in applicable technical
references, as specified below, distance extensions may be required and
additional rates and charges shall apply as set forth in Exhibit A or applicable
Tariffs.
Loop Type Technical Reference/Limitation
Electronic Key Line 2.5 miles
ISDN Bellcore TA-NWT-000393
HDSL 2W T1E1 Technical Report Number 28
HDSL 4W T1E1 Technical Report Number 2S
ADSL 2W ANSI T1.413 1995 Specification
11.7 Availability of Other Network Elements on an Unbundled Basis
11.7.1 BA shall, upon request of MGC, and to the extent
required by Applicable Law, provide to MGC access to its Network Elements on an
unbundled basis for the provision of MGC's Telecommunications Service. Any
request by MGC for access to a BA Network Element that is not already available
shall be treated as a Network Element Bona Fide Request. MGC shall provide BA
access to its Network Elements as mutually agreed by the Parties or as required
by Applicable Laws.
11.7.2 A Network Element obtained by one Party from the other
Party under this subsection 11.7 may be used in combination with the facilities
of the requesting Party only to provide a Telecommunications Service, including
obtaining billing and collection, transmission, and routing of the
Telecommunications Service.
11.7.3 Notwithstanding anything to the contrary in this
subsection 11.7, a Party shall not be required to provide a proprietary Network
Element to the other Party under this subsection 11.7 except as required by the
Commission or FCC.
11.8 Provisioning of Unbundled Local Loops
The following coordination procedures shall apply for conversions of
"live" Telephone Exchange Services to Unbundled Local Loops (also referred to as
"hot cuts"). These and other mutually agreed-upon procedures shall apply
reciprocally for the "live" cutover of Customers from BA to MGC and from MGC to
BA.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
11.8.1 MGC shall request ULLs from BA by delivering to BA a
valid electronic transmittal Service Order using the BA electronic ordering
platform or another mutually agreed upon system. Within two (2) business days of
BA's receipt of such valid Service Order, BA shall provide MGC the firm order
commitment ("FOC") date by which the Loop(s) covered by such Service Order will
be installed.
11.8.2 BA agrees to accept from MGC at the time the service
request is submitted for scheduled conversion of hot cut ULL orders, a desired
date and A.M. or P.M. designation (the "Scheduled Conversion Time") to the
extent available (as applicable, the "Conversion Window") for the hot cut.
11.8.3 BA shall test for MGC dial tone at the POT bay by
testing through the tie cable provisioned between the BA main distributing frame
and the MGC expanded Inter-connection node forty-eight (48) hours prior to the
Scheduled Conversion Time.
11.8.4 Not less than one hour prior to the Scheduled
Conversion Time, either Party may contact the other Party and unilaterally
designate a new Scheduled Conversion Time (the "New Conversion Time"). If the
New Conversion Time is within the Conversion Window, no charges shall be
assessed on or waived by either Party. If, however, the New Conversion Time is
outside of the Conversion Window, the Party requesting such New Conversion Time
shall be subject to the following:
If BA requests the New Conversion Time, the applicable Line
Connection Charge shall be waived; and
If MGC requests the New Conversion Time, MGC shall be assessed
a Line Connection Charge in addition to the Line Connection
Charge that will be incurred for the New Conversion Time.
11.8.5 Except as otherwise agreed by the Parties for a
specific conversion such as large cutovers of ten (10) lines or more that have
been negotiated, the Parties agree that the time interval expected from
disconnection of BA's "live" Telephone Exchange Service to the connection of an
unbundled Network Element at the MGC Collocation node will be accomplished
within a window of time of sixty (60) minutes or less. If MGC has ordered INP
with the installation of a Loop, BA will coordinate the implementation of INP
with the Loop conversion during with the above stated intervals at no additional
charge.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
11.8.6 If MGC requests or approves a BA technician to perform
services in excess of or not otherwise contemplated by the Line Connection
Service Charge BA may Charge MGC for any additional and reasonable labor charges
to perform such services.
11.8.7 If as the result of end user actions (e.g. Customer not
ready ["CNR"]), BA cannot complete requested work activity when technician has
been dispatched to the site, MGC will be assessed a non-recurring charge
associated with this visit. This charge will be the sum of the Service Order
Charge and Premises Visit Charge as specified in the NYPSC Tariffs Nos. 900/914.
11.9 Maintenance of Unbundled Network Elements
If (i) MGC reports to BA a Customer trouble, (ii) MGC requests a
dispatch, (iii) BA dispatches a technician, and (iv) such trouble was not caused
by BA facilities or equipment in whole or in part, then MGC shall pay BA a
charge set forth in Exhibit A for time associated with said dispatch. In
addition, this charge also applies when the Customer contact as designated by
MGC is not available at the appointed time. MGC accepts responsibility for
initial trouble isolation and providing BA with appropriate dispatch information
based on its test results. If as the result of MGC instructions, BA is
erroneously requested to dispatch within a BA Central Office or to a POT Bav
("dispatch in"), a charge set forth in Exhibit A will be assessed per occurrence
to MGC by BA. If as the result of MGC instructions, BA is erroneously requested
to dispatch outside a BA Central Office or to a POT Bay ("dispatch out"), a
charge set forth in Exhibit A will be assessed per occurrence to MGC by BA. BA
agrees to respond to MGC trouble reports on a non-discriminatory basis
consistent with the manner in which it provides service to its own retail
customers or to any other similarly initiated Telecommunications Carrier.
11.10 Other Terms and Conditions Including Rates and Charges
11.10.1 ULLs and other Network Elements will be offered on the
terms and conditions, including rates and charges, specified herein and on such
other terms as stated in applicable Tariffs, as amended from time to time, that
are not inconsistent with the terms and conditions set forth herein.
11.10.2 BA shall charge the non-recurring and monthly
recurring, rates for ULLs and other Network Elements set forth in Exhibit A as
interim rates until such time as the Commission adopts permanent rates
consistent with the requirements of the FCC Regulations.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
Such permanent rates shall be applied in the manner described in Exhibit A and
subsection 20.1.2 below.
12.0 RESALE-- SECTIONS 251(c)(4) and 251(b)(1)
12.1 Availability of Wholesale Rates for Resale
BA shall make available to MGC for resale all Telecommunications
Services as described in Section 251(c)(4) of the Act, pursuant to the rates,
terms and conditions of BA's NYPSC No. 915 tariff, as may be amended from time
to time.
12.2 Availability of Retail Rates for Resale
Each Party shall make available its Telecommunications Services for
resale at the retail rates set forth in its Tariffs to the other Party in
accordance with Section 251 (b)(1) of the Act. In addition, BA and MGC shall
each allow the resale by the other of all Telecommunications Services that are
offered primarily or entirely to other Telecommunications Carriers (e.g.
Switched and special Exchange Access Services) at the rates already applicable
to such services. BA shall also allow the resale by MGC of such other
non-Telecommunications Services as BA, in its sole discretion, determines to
provide for resale under terms and conditions to be agreed to by the Parties.
12.3 Additional Terms Governing Resale and Use of BA Services
12.3.1 MGC shall comply with the provisions of this Agreement
(including, but not limited to, all applicable BA Tariffs) regarding resale or
use of BA services. In addition, MGC shall undertake in good faith to ensure
that its Customers comply with the provisions of BA's Tariffs applicable to
their use of BA's Telecommunications Services.
12.3.2 Without in any way limiting subsection 12.3.1, MGC
shall not resell (a) residential service to business or other nonresidential
Customers of MGC, (b) Lifeline or other means-tested service offerings, or
grandfathered service offerings, to persons not eligible to subscribe to such
service offerings from BA, or (c) any other BA service in violation of any user
or user group restriction that may be contained in the BA Tariff applicable to
such service to the extent such restriction is not prohibited by Applicable
Laws. In addition, MGC shall be subject to the same limitations that BA's own
retail Customers may be subject to with respect to any Telecommunications
Service that BA may, in its discretion and to the extent not prohibited by
Applicable Law, discontinue offering.
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12.3.3 BA shall not be obligated to offer to MGC at a
wholesale discount Telecommunications Services that BA offers at a special
promotional rate if such promotions are for a limited duration of ninety (90)
days or less.
12.3.4 Upon request by BA, MGC shall provide to BA adequate
assurance of payment of charges due to BA in connection with MGC's purchase of
BA services for resale. Assurance of payment of charges may be requested by BA:
if MGC (a) in BA's reasonable judgment, at the Effective Date or at any time
thereafter, is unable to show itself to be creditworthy; (b) in BA's reasonable
judgment, at the Effective Date or at any time thereafter, is not creditworthy;
or, (c) fails to timely pay a bill rendered to MGC by BA. Unless otherwise
agreed by the Parties, the assurance of payment shall be in the form of a cash
deposit and shall be in an amount equal to the charges for BA services that MGC
may reasonably be expected to incur during, a period of two (2) months. BA may
at any time use the deposit or other assurance of payment to pay amounts due
from MGC.
12.3.5 MGC shall not be eligible to participate in any BA plan
or program under which BA end user retail Customers may obtain products or
merchandise, or services which are not BA Retail Telecommunications Services, in
return for trying, agreeing to purchase, purchasing, or using BA Retail
Telecommunications Services.
12.3.6 BA may impose additional restrictions on MGC's resale
of BA's retail Telecommunications Services to the extent permitted by Applicable
Laws.
13.0 COLLOCATION -- SECTION 251(c)(6)
13.1 BA shall offer to MGC Physical Collocation of equipment necessary
for Interconnection (pursuant to Section 4.0) or for access to unbundled Network
Elements (pursuant to Section 11.0), except that BA may offer only Virtual
Collocation if BA demonstrates to the Commission that Physical Collocation is
not practical for technical reasons or because of space limitations, as provided
in Section 251 (c)(6) of the Act. BA shall provide Collocation solely for the
purpose of Interconnection with facilities or services of BA or access to
unbundled Network Elements of BA, except as otherwise mutually agreed to in
writing by the Parties or as required by the FCC or the Commission, subject to
applicable federal and state Tariffs and license agreements.
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13.2 MGC agrees to offer to BA Collocation of equipment for purposes of
Interconnection (pursuant to Section 4) on a non-discriminatory basis and at
comparable rates, terms and conditions as MGC may provide to other third
parties. MGC shall provide such collocation subject to applicable Tariffs.
13.3 In the course of implementation of a Collocation project, BA
shall:
(a identify the Collocation project manager assigned
to the project;
(b develop a written comprehensive "critical tasks"
timeline detailing the work (and relative sequence
thereof) that is to be performed by each Party or
jointly by both Parties; and
(c provide MGC with the relevant engineering,
requirements.
13.4 The Collocating Party shall purchase Cross Connection to services
or facilities as described in applicable Tariffs.
13.5 Collocation shall occur under the terms of each Party's applicable
and available Tariffs, except that MGC reserves the right to collocate Remote
Switching Concentrators ("RSCs") only to the extent that any and all switching
functionality of such equipment has been rendered inoperative and constitutes
equipment that is used solely for the purpose of interconnection and access to
unbundled network elements to provide Telephone Exchange Service to its end user
customer(s). MGC recognizes and agrees that BA shall only be required to provide
an environment suitable for placement of toll transmission equipment ("Toll
Transmission Environment"). If, pursuant to Applicable Law, BA is required at
any future time to provide other than a Toll Transmission Environment, then MGC
shall pay all additional costs incurred by BA to provide such an environment.
13.6 Dedicated Transit Service
13.6.1 "Dedicated Transit Service" provides for the dedicated
connection between a MGC Collocation arrangement established pursuant to
applicable tariffs and/or license agreements at a BA premises and a Collocation
arrangement of a third Party carrier that maintains a Collocation arrangement at
the same premises. Dedicated Transit Service shall be provided using a
cross-connection (dedicated connection) using suitable BA -provided cable or
transmission facilities or any other mutually agreed upon arrangement.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
13.6.2 The carrier that requests the Dedicated Transit Service
shall be the customer of record for both ends of the service in terms of
ordering, provisioning, maintenance, and billing. Alternative arrangements may
be utilized if agreed upon by all three parties. Rates and charges for Dedicated
Transit Service are stated in Exhibit A.
SECTION 251(b) PROVISIONS
14.0 NUMBER PORTABILITY -- SECTION 251(b)(2)
14.1 Scope
14.1.1 The Parties shall provide Number Portability on a
reciprocal basis to each other to the extent technically feasible, and in
accordance with rules and regulations as from time to time prescribed by the FCC
and/or the Commission. The Parties shall provide Number Portability to each
other in the event a Customer of one Party ("Party A") elects to become a
Customer of the other Party ("Party B") and the Customer (i) remains within the
same central office district and within the boundary of the smallest
geographical area that is significant for billing (e.g. exchange zone) as
defined by the LEC to whom the ported Customer's NXX code was originally
assigned and (ii) elects to utilize the original telephone number(s)
correspondent to the Exchange Service(s) it previously received from Party A in
conjunction with the Exchange Service(s) it will now receive from Party B.
14.1.2 Until Permanent Number Portability is implemented by
the industry pursuant to regulations issued by the FCC and/or the Commission,
the Parties agree to reciprocally provide Interim Number Portability ("INP") to
each other at the prices listed in Exhibit A. Such agreed-upon prices for INP
are not intended to reflect either Party's views on the cost recovery mechanisms
being considered by the FCC in its current proceeding on number portability
issues.
14.1.3 Upon the agreement of the Parties or issuance of
applicable FCC and/or Commission order(s) or regulations mandating the adoption
of a Permanent Number Portability ("PNP") arrangement, BA and MGC will commence
migration from INP to the agreed-upon or mandated PNP arrangement as quickly as
practically possible while minimizing interruption or degradation of service to
their respective Customers. Once Permanent Number Portability is implemented,
either Party may withdraw, at any time and at its sole discretion, its INP
offerings, subject to advance notice to the other Party and coordination to
allow the seamless and
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transparent conversion of INTP Customer numbers to Permanent Number Portability.
Upon implementation of Permanent Number Portability pursuant to FCC or
Commission regulation, both Parties agree to conform and provide such Permanent
Number Portability. To the extent PNP rates or cost recovery mechanisms are not
established by the applicable FCC or Commission order or regulation mandating
the adoption of PNP, the Parties will negotiate in good faith the charges or
cost recovery mechanism for PNP service at such time as a PNP arrangement is
adopted by the Parties.
14.1.4 Under either an INP or PNP arrangement, MGC and BA will
implement a process to coordinate Number Portability cutovers with ULL
conversions (as described in Section 11 of this Agreement).
14.2 Procedures for Providing INP Through Remote Call Forwarding
MGC and BA will provide INIP through Remote Call Forwarding as follows:
14.2.1 A Customer of one Party ("Party A") elects to become a
Customer of the other Party ("Party B"). The Customer elects to utilize the
original telephone number(s) corresponding to the Telephone Exchange Service(s)
it previously received from Party A, in conjunction with the Telephone Exchange
Service(s) it will now receive from Party B. Upon receipt of confirmation of a
signed letter of agency ("LOA") from the Customer (and an associated service
order) assigning the number to Party B, Party A will implement an arrangement
whereby all calls to the original telephone number(s) will be forwarded to a new
telephone number(s) designated by Party B, only within the same Exchange Area as
the original telephone number(s). It is Party B's responsibility to maintain a
file of all LOAs and Party A may request, upon reasonable notice, a copy of the
LOA. Party A will route the forwarded traffic to Party B over the appropriate
Telephone Exchange Service Trunks as if the call had originated on Party A's
network.
14.2.2 Party B will become the customer of record for the
original Party A telephone numbers subject to the INP arrangements. Party A
shall use its reasonable efforts to consolidate into as few billing statements
as possible all collect, calling card, and 3rd-number billed calls associated
with those numbers, with sub-account detail by retained number. Such billing
statement shall be delivered to Party B in a mutually agreed-upon format via
either electronic file transfer, magnetic tape, or other mutually acceptable
medium.
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14.2.3 Party A will update its Line Information Database
("LIDB") listings for retained numbers, with the screening options provided by
Party B on a per order basis. Party B shall determine which of the screening
options offered by Party A should apply to the Party B Customer account. Party A
will cancel calling cards associated with those forwarded numbers assigned to
Party B.
14.2.4 Party B will outpulse the telephone number to which the
call has been forwarded to the 911 Tandem Office. Party B will also provide the
911 database with both the forwarded number and the directory number, as well as
the appropriate address information of the Customer.
14.2.5 Within two (2) business days of receiving notification
from the Customer, Party B shall notify Party A of the Customer's termination of
service with Party B, and shall further notify Party A as to that Customer's
instructions regarding its telephone number(s). Party A will reinstate service
to that Customer, cancel the INIP arrangements for that Customer's telephone
number(s), or redirect the INP arrangement to another INP-participating LEC
pursuant to the Customer's instructions at the time.
14.2.6 Party A shall be permitted to cancel INP arrangements
and reassign the telephone number(s) upon receipt of notification from Party B
or a third party that is authorized to act on behalf of the Customer. The
Parties agree to work cooperatively to develop procedures or adopt industry
standards or practices concerning the initiation and termination of INP service
in a multicarrier environment.
14.3 Procedures for Providing INP Through Route Indexing
Upon mutual agreement, BA will deploy a Route Index arrangement which
combines direct trunks, provisioned between BA's and MGC's end offices, with
trunk side routing translations and full functionality for those CLASS services
deployed in the specific BA switch. Under this arrangement, inbound calls to a
ported number will be pointed at a route index that sends the call to a
dedicated trunk group, built as a direct final, for the sole purpose of
facilitating completion of calls to a ported number. BA will coordinate with MGC
to provide this solution in a mutually agreeable and administratively manageable
manner (e.g. NXX level) so as to minimize switch resource utilization for both
Parties.
14.4 Procedures for Providing INP Through Full NXX Code Migration
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
Where either Party has activated an entire NXX for a single Customer,
or activated at least eighty percent (80%) of an NXX for a single Customer, with
the remaining numbers in that NXX either reserved for future use by that
Customer or otherwise unused, if such Customer chooses to receive Telephone
Exchange Service from the other Party, the first Party shall cooperate with the
second Party to have the entire NXX reassigned in the LERG (and associated
industry databases, routing tables, etc.) to an End Office operated by the
second Party. Such transfer will be accomplished with appropriate coordination
between the Parties and subject to appropriate industry lead-times for movements
of NXXs from one switch to another. Neither Party shall charge the other in
connection with this coordinated transfer.
14.5 Other Interim Number Portability Options
MGC may also request Direct Inward Dial Trunks pursuant to applicable
tariffs.
14.6 Receipt of Terminating Compensation on Traffic to INP'ed
Numbers
The Parties agree in principle that, under the INP arrangements
described in subsections 14.2 and 14.3 above, terminating compensation on calls
to INP'ed numbers should be received by each Customer's chosen LEC as if each
call to the Customer had been originally addressed by the caller to a telephone
number bearing an NPA-NXX directly assigned to the Customer's chosen LEC. In
order to accomplish this objective where INP is employed, the Parties shall
utilize the process set forth in this subsection 14.6 thereby terminating
compensation on calls subject to INP will be passed from the Party (the
"Performing Party") which performs the INP to the other Party (the "Receiving
Party") for whose Customer the INP is provided.
14.6.1 The Parties shall individually and collectively make
best efforts to track and quantify INIP traffic between their networks based on
the CPN of each call by identifying CPNs which are INP'ed numbers. The Receiving
Party shall charge the Performing Party for each minute of INP traffic at the
INP Traffic Rate specified in subsection 14.6.3 in lieu of any other
compensation charges for terminating such traffic, except as provided in
subsection 14.6.2.
14.6.2 By the Interconnection Activation Date in each LATA,
the Parties shall jointly estimate for the prospective six months, based on
historic data of all traffic in the LATA, the percentages of such traffic that,
if dialed to telephone numbers bearing NPA-NXXs directly assigned to a Receiving
Party (as opposed to the INP'ed number), would have been subject to (i)
Reciprocal Compensation ("Recip Traffic"), (ii) appropriate intrastate FGD
charges ("Intra Traffic"), (iii) interstate FGD charges ("Inter Traffic"), or
(iv) handling, as Transit Traffic. On
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the date which is six (6) months after the Interconnection Activation Date, and
thereafter on each succeeding six month anniversary of such Interconnection
Activation Date, the Parties shall establish new INIP traffic percentages to be
applied in the prospective six (6) month period, based on the Performing Party's
choice of actual INP traffic percentages from the preceding six (6) month period
or historic data of all traffic in the LATA.
14.6.3 The INP Traffic Rate shall be equal to the sum of:
(Recip Traffic percentage times the Reciprocal Compensation Rate
-----
set forth in Exhibit A)
plus
----
(Intra Traffic percentage times Receiving Party's effective
-----
intrastate FGD rates)
plus
----
(Inter Traffic percentage times Receiving Party's effective
-----
interstate FGD rates).
14.7 Recovery of INP Costs Pursuant to FCC Order and Rulemaking
Notwithstanding anything to the contrary contained in this Section 14,
in light of the FCC's First Report and Order and Further Notice of Proposed
Rulemaking, adopted June 27, 1996, in CC Docket 95-116 (the "Order"), the
Parties stipulate and agree as follows:
14.7.1 The rates listed in Exhibit A for the provision of INP
are appropriate amounts that each Party providing INP service should recover for
the provision of those INP functionalities in BA's operating territory on an
interim basis until the Commission mandates an alternative cost recovery
mechanism for the provision of INP. For the INP functions it provides, each
Party should be allowed to recover these amounts in a manner consistent with any
final FCC and/or Commission order on INP cost recovery (such as a state-wide
fund contributed to by all telecommunications carriers).
14.7.2 The Parties agree that neither Party waives its rights
to advocate its views that are consistent with this subsection 14.7 on the
appropriate INP cost recovery mechanism, or to present such views before any
relevant regulatory body or other agency as they relate to FCC or Commission
actions on INP cost recovery.
15.0 DIALING PARITY -- SECTION 251(b)(3)
BA and MGC shall each provide the other with nondiscriminatory access
to such services and information as are necessary to allow the other Party to
implement Dialing Parity for
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Telephone Exchange Service, operator services, directory assistance, and
directory listing information with no unreasonable dialing delays, as required
under Section 251(b)(3) of the Act.
16.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4)
Each Party ("Licensor") shall provide the other Party ("Licensee")
access for purposes of making attachments to the poles, ducts, rights-of-way and
conduits it owns or controls, pursuant to any existing or future license
agreement between the Parties, and in conformance with 47 U.S.C. 224, where
facilities are available, on terms, conditions and prices comparable to those
offered to any other entity pursuant to each Party's applicable Tariffs
(including generally available license agreements). Where no such Tariffs exist,
such access shall be provided in accordance with the requirements of 47 U.S.C.
224, including any applicable FCC regulations that may be issued.
17.0 DATABASES AND SIGNALING
BA shall provide MGC with interfaces to access BA's databases,
including LIDB and toll-free service access codes (i.e.; 800/888), and
associated signaling necessary for the routing and completion of MGC's traffic
through the provision of SS7 under its applicable tariffs.
18.0 COORDINATED SERVICE ARRANGEMENTS
18.1 Intercept and Referral Announcements
When a Customer changes its service provider from BA to MGC, or from
MGC to BA, and does not retain its original telephone number, the Party formerly
providing service to such Customer shall provide a referral announcement
("Referral Announcement") on the abandoned telephone number which provides
details on the Customer's new number or provide other appropriate information to
the extent known. Referral Announcements shall be provided reciprocally, free of
charge to either the other Party or the Customer, for a period of not less than
one hundred and eighty days (180) days after the date the Customer changes its
telephone number in the case of business Customers and not less than ninety (90)
days after the date the Customer changes its telephone number in the case of
residential Customers or other time periods as may be required by the
Commission. The periods for referral announcement may be shorter if a number
shortage conditions is in effect for a particular NXX code. However, if either
Party provides Referral Announcements for a period different than the above
respective periods
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
when its Customers change their telephone numbers, such Party shall provide the
same level of service to Customers of the other Party.
18.2 Coordinated Repair Calls
MGC and BA will employ the following procedures for handling
misdirected repair calls:
18.2.1 MGC and BA will educate their respective Customers as
to the correct telephone numbers to call in order to access their respective
repair bureaus.
18.2.2 To the extent Party A is identifiable as the correct
provider of service to Customers that make misdirected repair calls to Party B,
Party B will immediately refer the Customers to the telephone number provided by
Party A, or to an information source that can provide the telephone number of
Party A, in a courteous manner and at no charge.
18.2.3 MGC and BA will provide their respective repair contact
numbers to one another on a reciprocal basis.
18.3 Customer Authorization
18.3.1 Without in any way limiting either Party's obligations
under subsection 28.1, each Party shall comply with Applicable Laws with regard
to Customer selection of a primary Telephone Exchange Service provider. Until
the Commission and/or FCC adopts regulations and/or orders applicable to
Customer selection of a primary Telephone Exchange Service provider, each Party
shall adhere to the rules and procedures set forth in Section 64.1100 of the FCC
Rules, 47 CFR ss. 64.1100, in effect on the Effective Date hereof when ordering,
terminating, or otherwise changing Telephone Exchange Service on behalf of the
other Party's or another carrier's Customers.
18.3.2 In the event either Party requests that the other Party
install, provide, change, or terminate a Customer's Telecommunications Service
(including, but not limited to, a Customer's selection of a primary Telephone
Exchange Service Provider) and (a) fails to provide documentary evidence of the
Customer's primary Telephone Exchange Service Provider selection upon request,
or (b) without having obtained authorization from the Customer for such
installation, provision, selection, change or termination in accordance with
Applicable Laws (or as provided in subsection 18.3.1 above), the requesting
Party shall be liable to the other Party for all charges that would be
applicable to the Customer for the initial change in the Customer's
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
Telecommunications Service and any charges for restoring the Customer's
Telecommunications Service to its Customer-authorized condition, including to
the appropriate primary Telephone Exchange Service provider.
18.3.3 Without in any way limiting MGC's obligations under
subsection 28.1, MGC shall comply with Applicable Laws with regard to Customer
Proprietary Network Information, including, but not limited to, 47 U.S.C. ss.
222. MGC shall not access (including, but not limited to, through BA OSS
Services and BA Pre-OSS Services), use, or disclose Customer Proprietary Network
Information made available to MGC by BA pursuant to this Agreement unless MGC
has obtained any Customer authorization for such access, use and/or disclosure
required by Applicable Laws. By accessing, using or disclosing Customer
Proprietary Network Information, MGC represents and wan-ants that it has
obtained authorization for such action from the applicable Customer in the
manner required by Applicable Laws and this Agreement. MGC shall, upon request
by BA, provide proof of such authorization (including a copy of any written
authorization).
18.3.4 BA shall have the right to monitor and/or audit MGC's
access to and use and/or disclosure of Customer Proprietary Network Information
that is made available by BA to MGC pursuant to this Agreement to ascertain
whether MGC is complying with the requirements of Applicable Laws and this
Agreement with regard to such access, use, and/or disclosure. To the extent
permitted by Applicable Laws, the foregoing right shall include, but not be
limited to, the right to electronically monitor MGC's access to and use of
Customer Proprietary Network Information that is made available by BA to MGC
pursuant to this Agreement.
19.0 DIRECTORY SERVICES ARRANGEMENTS
BA will provide certain directory services to MGC as defined herein. In
this Section 19 of this Agreement, references to MGC customer telephone numbers
means telephone numbers falling within NXX codes directly assigned to MGC and to
numbers which are retained by MGC on the customer's behalf pursuant to Interim
Telephone Number Portability arrangements described in Section 14.0 of this
Agreement.
19.1 Directory Listings and Directory Distributions
19.1.1 BA will include MGC's Customers telephone numbers in
all of its "White Pages" and "Yellow Pages" directory listings (including
electronic directories) and directory assistance databases associated with the
areas in which MGC provides services to such
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customers, and will distribute such directories to such customers, in an
identical and transparent manner in which it provides those functions for its
own customers' telephone numbers.
19.1.2 BA will include all MGC NXX codes on appropriate
existing calling charts in the BA customer Guide section of the directory in the
same manner as it provides this conformation for its own NXX Codes.
19.1.3 MGC will provide BA with its directory listings and
daily updates to those listings (including new, changed, and deleted listings)
in a mutually agreed upon format at no charge.
19.1.4 BA will accord MGC's directory listing information the
same level of confidentiality which BA accords its own directory listing
information.
19.1.5 BA will include, without charge, an Other Local Service
Provider section in its Primary White and Primary White and Yellow Page
Telephone Directories. When MGC is operating with established end users in the
geographic region covered by a specific White Page or Primary White and Yellow
Page Directory, MGC will be included, at its request, in the Other Local Service
Provider section of that specific directory. MGC will be responsible for
providing the Other Local Service Provider Information Pages Input Form to Bell
Atlantic Yellow Pages Company for each directory. MGC telephone numbers for
installation, repair and billing departments, and logo information that appears
in the directory will be in accordance with BA's generally applicable policies.
MGC shall comply with the Other Local Service Provider Information Pages General
Guidelines.
19.1.6 BA will provide MGC with a report of all MGC customer
listings ninety (90) days prior to service order close date for that directory
in such form and format as may be mutually agreed to by both parties. Both
Parties shall use their best efforts to ensure the accurate listing of such
information. BA will process any corrections made by MGC with respect to its
listings, provided such corrections are received prior to the close date of the
particular directory. BA will provide appropriate advance notice of applicable
close dates.
19.1.7 Yellow Page Maintenance
BA will work cooperatively with MGC so that Yellow Page
advertisements purchased by customers who switch their service to MGC (including
customers utilizing Interim Telephone Number Portability) are maintained without
interruption. BA will allow MGC
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
customers to purchase new yellow pages advertisements without discrimination,
under the identical rates, terms and conditions that apply to BA's customers.
19.2 Directory Assistance and Operator Services
At the option of MGC, BA will provide Directory Assistance to MGC
Customers on behalf of MGC under the following terms and conditions:
BA provides Directory Assistance ("DA") service to MGC's customers
served by MGC's own switching facilities over separate trunk groups ordered or
provided by MGC to the BA Traffic Operation Position Systems ("TOPS") switch(es)
designated by BA. Access to the BA DA platform from MGC's local switch requires
that MGC utilize Feature Group C ("FG-C") Modified Operator Services Signaling.
The Interoffice Transmission Facility ("IOF") mileage rate for the facility will
be based on airline mileage using V&H coordinate methods from the MGC location
to the designated BA TOPS. Trunk terminations at the TOPS switch(es) require MGC
to purchase trunk ports at rates specified in Exhibit A. For each trunk group
MGC must indicate the DA option selected from those set forth in 19.2.2 (a), (b)
and (c) below; and/or
BA provides MGC access to DA service for MGC Customers served by BA
unbundled local Switching Elements, through dedicated IOF and trunk ports
between the BA End Office in which MGC has unbundled local switching ports and
the BA TOPS switches. Additional per minute of use ("MOU") local switching
charges, set forth in Exhibit A, will apply for all calls which interconnect
from the unbundled local switching ports to the BA TOPS.
19.2.1 Directory Assistance
At MGC's option, BA will provide MGC Customers access to
Telephone Directory Assistance operators via 411, 555-1212, or
1+ (NPA) 555-1212 dialing.
Rates for requests for Directory Assistance will be billed to
MGC and are stated in Exhibit A.
BA will not provide Directory Assistance call allowances to
MGC or MGC's Customers.
19.2.2 Directory Assistance with Branding
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This service allows MGC to select only one of the three
options as follows:
. (a) MGC may provide BA with a MGC branded, introductory
Directory Assistance and Operator Services
announcement which will be played for all MGC
Customers completing DA or Operator Services calls
over the trunk group to the BA TOPS.
Such branding announcement may be a maximum of eighteen (18)
seconds, recorded by MGC or, at MGC's request and subject to
charges to be determined on an individual case basis, by BA.
MGC must provide a minimum of two (2) audio cassette
recordings of the MGC branding announcement.
. (b) MGC may request BA branded announcement.
. (c) MGC may request an unbranded, generic announcement.
Rates for requests for Directory Assistance with branding will
be billed to MGC and are stated in Exhibit A.
19.3 Directory Assistance Call Completion
At MGC's option BA will provide Directory Assistance Call Completion
("DACC") for automatic connection of a MGC Customer calling BA DA and the
published telephone number requested.
After the BA DA operator provides the requested number, a recorded
service message will offer to connect the MGC Customer to that number for a
specified additional charge.
The MGC Customer can accept the offer for DACC by depressing a button
(touch tone) or responding by voice (dial), as instructed by the voice message.
The DACC charge will apply as set forth in Exhibit A. In addition, for
calls originating from a facilities-based MGC switch or for calls from MGC
unbundled local switching line ports, there will be charges to terminate the
call from the TOPS Tandem to the called party. These include applicable per
minute of use Unbundled Tandem Transport Charges ("UTTC") for each call
transported between the TOPS Tandem and the originating End Office, per minute
of use Tandem Transit Switching Charge ("TTSC") for each call that traverses a
BA Tandem switch,
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and the appropriate per minute of use charges for Reciprocal Compensation
("UNRCC" or "UCRCC") depending on the terminating End Office Switch, as set
forth in Exhibit A.
DACC is available to MGC residence and business Customers and from
public telephones on a collect, bill to third number or calling card basis.
Appropriate charges for the selected billing option will apply in addition to
the DACC charge.
DACC is available with all telephone numbers in the BA DA database with
the following exceptions:
- non-published telephone numbers
- interLATA numbers
- 700, 800 and 900 numbers.
When a caller requests more than one number for Directory Assistance,
DACC is offered only for the first eligible listing that was selected by the
operator.
The DACC charge applies only to calls actually completed.
The DACC charge will be credited for completion of calls to the wrong
number, incomplete connections or calls with unsatisfactory transmission as set
forth in Section 19.4 following.
Rates for requests for DACC will be billed to MGC as set forth in
Exhibit A.
19.4 Directory Assistance Credits
Directory Assistance credits will apply to MGC for directory
inaccessibility, wrong numbers, cut-offs and poor transmission. When a MGC
Customer reports such a call, i.e. the requested number, the provided number,
and the reason the provided number is incorrect, to the BA directory assistance
operator, the number of calls for which a credit will apply will be developed by
the BA DA operator and credited to MGC. BA will identify the specific MGC
Customer to whom the credit applies.
19.5 Direct Access to Directory Assistance
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
Direct Access to Directory Assistance ("DADA") is a database service
that provides access to BA listings to a MGC operator. The DADA database is a
physically distinct entity from the BA DA database, populated with identical
listing data, and updated from the same source on a daily basis.
To obtain access, MGC is required to arrange for interconnection to the
database. BA will interconnect at any technically feasible point designated by
MGC.
BA will provide MGC with a User Guide for training its agents.
Rates and Charges for DADA are stated in Exhibit A.
19.6 Inward Operator Services
Inward Operator Services enables MGC or its operator service provider
to connect to the BA TOPS office(s) for the purpose of providing
certain operator services to MGC Customers. There are two
types of Inward Operator Services:
19.6.1 Busy Line Verification ("BLV"):
BLV is service wherein, at the request of MGC's Customer or
operator service provider, a BA operator will attempt to determine the status of
an exchange service line (e.g., conversation in progress, available to receive a
call or out of service) and report to MGC's Customer or operator service
provider.
19.6.2 Busy Line Verification/Interrupt ("BLV/I")
BLV/I is a service wherein, at the request of MGC's Customer
or operator service provider, a BA operator will determine and report whether a
conversation is in progress on an exchange service line, and then interrupt such
conversation to request that it be terminated so that MGC's Customer may
complete a call to the line. MGC may order Inward Operator Services under the
following terms and conditions:
Inward Operator Services are provided over trunk groups
ordered by MGC or its alternate operator service provider to BA TOPS switch(es)
as specified by BA.
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Inward Operator Services cannot be provided for ported
telephone numbers, or telephone numbers which forward calls using Call
Forwarding Variable service features.
BA will provide BLV and BLV/I for telephone numbers provided
in its operating territory.
The BA operator will respond to one telephone number per call
on requests for BLV or BLV/I.
BA will designate the TOPS switch(es) serving specific NXXs
and make such information available to MGC.
MGC and its Customer shall indemnify and save BA harmless
against all claims that may arise from either party to the interrupted call or
any other person.
Rates and Charges for Inward Operator Services are set forth
in Exhibit A.
19.7 Operator Services
At MGC's option, BA will provide for the routing of Operator Services
("OS") calls dialed by MGC Customers directly to either the MGC Operator
Services platform or to the BA Operator Services platform.
BA provides OS to MGC Customers served by MGC switches over separate
trunk groups ordered or provided by MGC to the BA TOPS switch(es) as specified
by BA. Access to the BA OS platform from MGC's local switch requires that MGC
utilize Feature Group C Modified Operator Services Signaling. The Interoffice
Transmission Facility mileage rate for the facility will be based on airline
mileage using V&H coordinate methods from the MGC location to the designated BA
TOPS. Trunk terminations at the TOPS switch(es) require MGC to purchase trunk
ports at rates specified in Exhibit A. For each trunk group, MGC must indicate
the branding option selected as set forth in Sections 19.2.2 (a), (b), and (c)
preceding; and/or
BA also provides MGC access to OS for MGC Customers served by BA
unbundled local Switching Elements, through dedicated IOF and trunk ports
between the BA End Office in which MGC has unbundled local switching ports and
the BA TOPS switches. Additional per minute of use ("MOU") local switching
charges, set forth in Exhibit A, will apply for all calls which interconnect
from the unbundled local switching ports to the BA TOPS.
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19.8 0+ Mechanized Operator Calls (Calling Card, Collect, Bill to
Third Number)
At MGC's option, the mechanized BA operator interface will provide
MGC's Customer the ability to complete 0+ mechanized operator calls using
alternate billing capabilities without live operator assistance. Alternate
billing call completions can be calling card, collect or bill-to-third-number.
0+ mechanized calls may be routed over the same DA trunk groups which
provide interconnection from the MGC switch or from the MGC unbundled local
switching line ports to the BA TOPS.
Rates for requests for 0+ mechanized calls will be billed to MGC and
are set forth in Exhibit A. In addition, for calls originating from a
facilities-based MGC switch or for calls from MGC unbundled local switching line
ports, there will be charges to terminate the call from the TOPS Tandem to the
called party. These include applicable per minute of use Unbundled
Tandem Transport Charges ("UTTC") for each call transported between the
TOPS Tandem and the originating End Office, per minute of use Tandem Transit
Switching Charge ("TTSC') for each call that traverses a BA Tandem switch, and
the appropriate per minute of use charges for Reciprocal Compensation ("UNRCC"
or "UCRCC") depending on the terminating End Office Switch, as set forth in
Exhibit A.
19.9 0- Operator Handled Calls (Calling Card, Collect, Bill to
Third Number)
At MGC's option, the BA will provide live operator assistance to the
MGC Customer for intraLATA calls completion via 0- dialing with alternate
billing capabilities. Alternate billing capabilities include calling card,
collect and bill-to-third-number, station-to-station and person-to-person.
0- operator handled calls may be routed over the same DA trunk groups
which provide interconnection from the MGC switch or the MGC unbundled local
switching line ports to the BA TOPS.
Rates for requests for 0- operator handled calls will be billed to MGC
and are set forth in Exhibit A. In addition, for calls originating from a
facilities-based MGC switch or for calls from MGC unbundled local switching line
ports, there will be charges to terminate the call from the
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TOPS Tandem to the called party. These include applicable per minute of use
Unbundled Tandem Transport Charges ("UTTC") for each call transported between
the TOPS Tandem and the originating End Office, per minute of use Tandem Transit
Switching Charge ("TTSC") for each call that traverses a BA Tandem switch, and
the appropriate per minute of use charges for Reciprocal Compensation ("UNRCC"
or "UCRCC") depending on the terminating End Office Switch, as set forth in
Exhibit A.
19.10 Operator Emergency Bulletin Service
At MGC's option, BA will provide MGC with emergency numbers for police,
fire, ambulance and Public Safety Answering Points (PSAP) in the BA serving area
so that MGC operators can connect callers directly to the proper emergency
bureaus.
The BA Operator Emergency Bulletin Service lists the emergency, police,
fire, ambulance and PSAP telephone numbers by municipality and in alphabetical
order for each of the areas served by BA.
Operator Emergency Bulletin Service is available for use by MGC
operators solely for the purpose of assisting callers in reaching an emergency
bureau.
Operator Emergency Bulletin Service provides a copy of BA's own
emergency bulletin. This service includes one annual copy of the bulletin plus
periodic updates during the year. Other Local Exchange Carrier emergency numbers
are not included.
Rates and charges for Operator Emergency Bulletin service are set forth
in Exhibit A.
19.11 Operator Passthrough Service
At MGC's option, BA will, provide MGC's Customers with operator
passthrough service to access their presubscribed Interexchange Carrier's
operators for operator assisted call completion. Such access will be available
only where the presubscribed IXC provides operator services for MGC's Customers
for calls originating from a particular LATA, and where the IXC OS has the
capability to receive calls passed from BA within the LATA.
If an IXC does not provide operator services for MGC's Customer, BA
will provide MGC's Customer with access to an IXC designated operator services
provider or to a BA
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provided announcement which will direct MGC's Customer to contact the Customer's
presubscribed IXC for dialing instructions.
The Operator Passthrough charge is applied on an operator work second
basis, and rated using the 0- operator handled calls in Exhibit A.
MGC will be charged for calls passed through to either the
Presubscribed IXC's operator, or to a BA provided recording indicating that the
IXC does not provide service in that area.
Rates and charges for operator passthrough service are stated in
Exhibit A.
20.0 COORDINATION WITH TARIFF TERMS
20.1 The Parties acknowledge that some of the services, facilities, and
arrangements described herein are or will be available under and subject to the
terms of the federal or state tariffs of the other Party applicable to such
services, facilities, and arrangements. To the extent a Tariff of the providing
Party applies to any service, facility, and arrangement described herein, the
Parties agree as follows:
20.1.1 Those rates and charges set forth in Exhibit A for the
services, facilities, and arrangements described herein that reference or are
identical to a rate contained in an existing Tariff of the providing Party,
shall conform with those contained in the then-prevailing Tariff and vary in
accordance with any changes that may be made to the Tariff rates and charges
subsequent to the Effective Date.
20.1.2 As applied to wholesale discount rates, unbundled
Network Elements or termination of Reciprocal Compensation Traffic and other
Interconnection services purchased for the provision of Telephone Exchange
Service or Exchange Access, the rates and charges set forth in Exhibit A shall
apply until such time as they are replaced by new rates as may be approved by
the Commission from time to time, subject to a stay or other order issued by any
court of competent jurisdiction. At such time(s) as such new rates have been
approved by the Commission, the Parties shall amend Exhibit A to reflect the new
approved rates.
20.2 Except with respect to the rates and charges described in
subsection 20.1 above, all other terms contained in an applicable Tariff of the
providing Party shall apply in connection with its provision of the particular
service, facility, and arrangement hereunder.
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21.0 INSURANCE
21.1 MGC shall maintain, during the term of this Agreement, all
insurance and/or bonds required by law and necessary to satisfy its obligations
under this Agreement, including, without limitation, its obligations set forth
in Section 25 hereof. At a minimum and without limiting the foregoing covenant,
MGC shall maintain the following insurance:
(a) Commercial General Liability Insurance, on an occurrence
basis, including but not limited to, premises-operations,
broad form property damage, products/completed operations,
contractual liability, independent contractors, and personal
injury, with limits of at least $2,000,000 combined single
limit for each occurrence.
(b) Automobile Liability, Comprehensive Form, with limits of at
least $500,000 combined single limit for each occurrence.
(c) Excess Liability, in the umbrella form, with limits of at
least $10,000,000 combined single limit for each occurrence.
(d) Worker's Compensation Insurance as required by law and
Employer's Liability Insurance with limits of not less than
$1,000,000 per occurrence.
21.2 MGC shall name BA as an additional insured on the foregoing
insurance.
21.3 MGC shall, within two (2) weeks of the date hereof and on a
semi-annual basis thereafter, furnish certificates or other adequate proof of
the foregoing insurance. The certificates or other proof of the foregoing
insurance shall be sent to: [Bell Atlantic, Insurance Administration Group, 1320
N. Court House Road, 4th Floor, Arlington, Virginia, 22201]. In addition, MGC
shall require its agents, representatives, or contractors, if any, that may
enter upon the premises of BA or BA's affiliated companies to maintain similar
and appropriate insurance and, if requested, to furnish BA certificates or other
adequate proof of such insurance. Certificates furnished by MGC or MGC's agents,
representatives, or contractors shall contain a clause stating: "BA - New York
shall be notified in writing at least thirty (30) days prior to cancellation of,
or any material change in, the insurance."
22.0 TERM AND TERMINATION
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22.1 This Agreement shall be effective as of the date first above
written and continue in effect until December 31, 1999, and thereafter the
Agreement shall continue in force and effect unless and until terminated as
provided herein. Upon the expiration of the initial term, either Party may
terminate this Agreement by providing written notice of termination to the other
Party, such written notice to be provided at least ninety (90) days in advance
of the date of termination. In the event of such termination, those service
arrangements made available under this Agreement and existing at the time of
termination shall continue without interruption under (a) a new agreement
executed by the Parties, (b) standard Interconnection terms and conditions
approved and made generally effective by the Commission, (c) Tariff terms and
conditions generally available to CLECs, or (d) if none of the above is
available, under the terms of this Agreement on a month-to-month basis until
such time as (a), (b), or (c) becomes available.
22.2 For service arrangements made available under this Agreement and
existing at the time of termination, if the standard Interconnection terms and
conditions or Tariff terms and conditions result in the non-terminating Party
physically rearranging facilities or incurring programming expense, the
non-terminating Party shall be entitled to recover such rearrangement or
programming costs from the terminating Party.
22.3 If either Party defaults in the payment of any amount due
hereunder, or if either Party violates any other provision of this Agreement,
and such default or violation shall continue for sixty (60) days after written
notice thereof, the other Party may terminate this Agreement and services
hereunder by written notice; provided the other Party has provided the
defaulting Party and the appropriate federal and/or state regulatory bodies with
written notice at least twenty-five (25) days prior to terminating service.
Notice shall be posted by overnight mail, return receipt requested. If the
defaulting Party cures the default or violation within the twenty-five (25) day
period, the other Party will not terminate service or this Agreement but shall
be entitled to recover all costs, if any, incurred by it in connection with the
default or violation, including, without limitation, costs incurred to prepare
for the termination of service.
23.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES,
FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT AND
THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
A PARTICULAR PURPOSE.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
24.0 CANCELLATION CHARGES
Except as provided in this Agreement or as otherwise provided in any
applicable Tariff, no cancellation charges shall apply.
25.0 INDEMNIFICATION
25.1 Each Party agrees to release, indemnify, defend and hold harmless
the other Party from and against all losses, claims, demands, damages, expenses,
suits or other actions, or any liability whatsoever, including, but not limited
to, costs and attorneys' fees (collectively, a "Loss"), (a) whether suffered,
made, instituted, or asserted by any other party or person, relating to personal
injury to or death of any person, or for loss, damage to, or destruction of real
and/or personal property, whether or not owned by others, arising from
transactions or activities relating to this Agreement and to the extent
proximately caused by the negligent or willful acts or omissions of the
indemnifying Party, regardless of the form of action, or (b) suffered, made,
instituted, or asserted by its own customer(s) against the other Party arising
out of the other Party's provision of services to the indemnifying Party under
this Agreement. Notwithstanding the foregoing indemnification, nothing in this
Section 25.0 shall affect or limit any claims, remedies, or other actions the
indemnifying Party may have against the indemnified Party under this Agreement,
any other contract, or any applicable Tariff(s), regulations or laws for the
indemnified Party's provision of said services.
25.2 The indemnification provided herein shall be conditioned upon:
(a) The indemnified Party shall promptly notify the indemnifying
Party of any action taken against the indemnified Party
relating to the indemnification.
(b) The indemnifying Party shall have sole authority to defend any
such action, including the selection of legal counsel, and the
indemnified Party may engage separate legal counsel only at
its sole cost and expense.
(c) In no event shall the indemnifying Party settle or consent to
any judgment pertaining to any such action without the prior
written consent of the indemnified Party, which consent shall
not be unreasonably withheld. However, in the event the
settlement or judgment requires a contribution from or affects
the rights of the Indemnified Party, the Indemnified Party
shall have the right to refuse such
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settlement or judgment and, at its own cost and expense, take
over the defense against such Loss, provided that in such
event the indemnifying Party shall not be responsible for, nor
shall it be obligated to indemnify the indemnified Party
against, the Loss for any amount in excess of such refused
settlement or judgment.
(d) The indemnified Party shall, in all cases, assert any and all
provisions in its Tariffs that limit liability to third
parties as a bar to any recovery by the third party claimant
in excess of such limitation of liability.
(e) The indemnified Party shall offer the indemnifying Party all
reasonable cooperation and assistance in the defense of any
such action.
26.0 LIMITATION OF LIABILITY
26.1 The liability of either Party to the other Party for damages
arising out of failure to comply with a direction to install, restore or
terminate facilities; or out of failures, mistakes, omissions, interruptions,
delays, errors, or defects (collectively, "Errors") occurring in the course of
furnishing any services, arrangements, or facilities hereunder shall be
determined in accordance with the terms of the applicable tariff(s) of the
providing Party. In the event no tariff(s) apply, the providing Party's
liability for such Errors shall not exceed an amount equal to the pro rata
monthly charge for the period in which such failures, mistakes, omissions,
interruptions, delays, errors or defects occur. Recovery of said amount shall be
the injured Party's sole and exclusive remedy against the providing Party for
such failures, mistakes, omissions, interruptions, delays, errors or defects.
26.2 Neither Party shall be liable to the other in connection with the
provision or use of services offered under this Agreement for indirect,
incidental, consequential, reliance or special damages, including (without
limitation) damages for lost profits (collectively, "Consequential Damages"),
regardless of the form of action, whether in contract, warranty, strict
liability, or tort, including, without limitation, negligence of any kind, even
if the other Party has been advised of the possibility of such damages;
provided, that the foregoing shall not limit a Party's obligation under Section
25.
26.3 The Parties agree that neither Party shall be liable to the
customers of the other Party in connection with its provision of services to the
other Party under this Agreement. Nothing in this Agreement shall be deemed to
create a third party beneficiary relationship between the Party providing the
service and the customers of the Party purchasing the service. In
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
the event of a dispute involving both Parties with a customer of one Party, both
Parties shall assert the applicability of any limitations on liability to
customers that may be contained in either Party's applicable Tariff(s).
27.0 PERFORMANCE STANDARDS FOR SPECIFIED ACTIVITIES
27.1 Performance Standards
BA shall provide the Interconnection and unbundled Network Elements
contemplated hereunder in accordance with the performance standards set forth in
Section 251(c) of the Act and the FCC Regulations.
27.2 Performance Reporting
27.2.1 At such time as BA makes available the Performance
Monitoring Reports described by the FCC Order in the Application of BELL
ATLANTIC Corporation, Transferee, For Consent to Transfer Control of BELL
ATLANTIC Corporation and its Subsidiaries, NSD-L-96-10, Memorandum Opinion and
Order (August 14, 1997) ("the FCC Merger Order") to other Telecommunications
Carriers purchasing Interconnection from BA, BA shall provide MGC with the
Performance Monitoring Reports applicable to MGC in accordance with the
requirements of said FCC Merger Order.
27.2.2 MGC agrees that the performance information included in
the Performance Monitoring Reports is confidential and proprietary to BA, and
shall be used by MGC solely for internal performance assessment purposes, for
purposes of joint MGC and BA assessments of service performance, and for
reporting to the Commission, the FCC, or courts of competent jurisdiction, under
cover of an agreed-upon protective order, for the sole purpose of enforcing BA's
obligations hereunder. MGC shall not otherwise disclose this information to
third parties.
28.0 COMPLIANCE WITH LAWS; REGULATORY APPROVAL
28.1 Each Party shall promptly notify the other Party in writing of any
governmental action that suspends, cancels, withdraws, limits, or otherwise
materially affects its ability to perform its obligations hereunder.
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28.2 The Parties understand and agree that this Agreement will be filed
with the Commission and may thereafter be filed with the FCC as an integral part
of BA's application pursuant to Section 271(d) of the Act. The Parties covenant
and agree that this Agreement is satisfactory to them as an agreement under
Section 251 of the Act. Each Party covenants and agrees to fully support
approval of this Agreement by the Commission or the FCC under Section 252 of the
Act without modification. The Parties, however, reserve the right to seek
regulatory relief and otherwise seek redress from each other regarding
performance and implementation of this Agreement, including, without limitation,
the conformance of this Agreement to the FCC Regulations as provided in
subsection 28.3 below.
28.3 The Parties recognize that the FCC has issued and may continue to
issue regulations implementing Sections 251, 252, and 271 of the Act that affect
certain terms contained in this Agreement. In the event that any one or more of
the provisions contained herein is inconsistent with any applicable rule
contained in such FCC Regulations or, in BA's reasonable determination, affects
BA's application pursuant to Section 271(d) of the Act, the Parties agree to
make only the minimum revisions necessary to eliminate the inconsistency or
amend the application-affecting provision(s). Such minimum revisions shall not
be considered material, and shall not require further Commission approval
(beyond any Commission approval required under Section 252(e) of the Act).
28.4 In the event any Applicable Law other than the FCC Regulations
requires modification of any material term(s) contained in this Agreement,
either Party may require a renegotiation of the term(s) that require direct
modification as well as of any term(s) that are reasonably affected thereby. If
neither Party requests a renegotiation or if an Applicable Law requires
modification of any non-material term(s), then the Parties agree to make only
the minimum modifications necessary, and the remaining provisions of this
Agreement shall remain in full force and effect. For purposes of this subsection
28.4 and without limitation of any other modifications required by Applicable
Laws, the Parties agree that any modification required by Applicable Laws (i) to
the two-tier Reciprocal Call Termination compensation structure for the
transport and termination of Reciprocal Compensation Traffic described in
Exhibit A, or (ii) that affects either Party's receipt of reciprocal
compensation for the transport and termination of Reciprocal Compensation
Traffic, shall be deemed to be a modification of a material term that requires
immediate good faith renegotiation between the Parties.
28.5 Compliance with the Communications Assistance for Law Enforcement
Act of 1994 ("CALEA"). Each Party represents and warrants that any equipment,
facilities or services provided to the other Party under this Agreement comply
with CALEA. Each Party shall
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indemnify and hold the other Party harmless from any and all penalties imposed
upon the other Party for such noncompliance and shall at the non-compliant
Party's sole cost and expense, modify or replace any equipment, facilities or
services provided to the other Party under this Agreement to ensure that such
equipment, facilities and services fully comply with CALEA.
29.0 MISCELLANEOUS
29.1 Authorization
29.1.1 BA is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York and has full power
and authority to execute and deliver this Agreement and to perform the
obligations hereunder.
29.1.2 MGC is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada, and has full power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder.
29.2 Independent Contractor
Each Party shall perform services hereunder as an independent
contractor and nothing herein shall be construed as creating any other
relationship between the Parties. Each Party and each Party's contractor shall
be solely responsible for the withholding or payment of all applicable federal,
state and local income taxes, social security taxes and other payroll taxes with
respect to their employees, as well as any taxes, contributions or other
obligations imposed by applicable state unemployment or workers' compensation
acts. Each Party has sole authority and responsibility to hire, fire and
otherwise control its employees.
29.3 Force Majeure
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable control of
such Party, regardless of whether such delays or failures in performance were
foreseen or foreseeable as of the date of this Agreement, including, without
limitation: adverse weather conditions, fire, explosion, power failure, acts of
God, war, revolution, civil commotion, or acts of public enemies; any law,
order, regulation, ordinance or requirement of any government or legal body; or
labor unrest, including, without limitation, strikes, slowdowns, picketing or
boycotts; or delays caused by the other Party or by other service or equipment
vendors; or any other circumstances beyond the Party's reasonable
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control. In such event, the affected Party shall, upon giving prompt notice to
the other Party, be excused from such performance on a day-to-day basis to the
extent of such interferences (and the other Party shall likewise be excused from
performance of its obligations on a day-to-day basis to the extent such Party's
obligations relate to the performance so interfered with). The affected Party
shall use its best efforts to avoid or remove the cause(s) of non-performance
and both Parties shall proceed to perform with dispatch once the cause(s) are
removed or cease.
29.4 Confidentiality
29.4.1 All information, including but not limited to
specification, microfilm, photocopies, magnetic disks, magnetic tapes, drawings,
sketches, models, samples, tools, technical information, data, employee records,
maps, financial reports, and market data, (i) furnished by one Party to the
other Party dealing with customer specific, facility specific, or usage specific
information, other than customer information communicated for the purpose of
publication or directory database inclusion, or (ii) in written, graphic,
electromagnetic, or other tangible form and marked at the time of delivery as
"Confidential" or "Proprietary," or (iii) communicated orally and declared to
the receiving Party at the time of delivery, and by written notice given to the
receiving Party within ten (10) days after delivery, to be "Confidential" or
"Proprietary" (collectively referred to as "Proprietary Information"), shall
remain the property of the disclosing Party.
29.4.2 Each Party shall keep all of the other Party's
Proprietary Information confidential in the same manner it holds its own
Proprietary Information confidential (which in all cases shall be no less than
reasonable) and shall use the other Party's Proprietary Information only for
performing the covenants contained in this Agreement. Neither Party shall use
the other Party's Proprietary Information for any other purpose except upon such
terms and conditions as may be agreed upon between the Parties in writing.
29.4.3 Unless otherwise agreed, the obligations of
confidentiality and non-use set forth in this Agreement do not apply to such
Proprietary Information that:
(a) was, at the time of receipt, already known to the
receiving Party free of any obligation to keep it
confidential as evidenced by written records
prepared prior to delivery by the disclosing Party;
or
(b) is or becomes publicly known through no wrongful
act of the receiving Party; or
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(c) is rightfully received from a third person having
no direct or indirect secrecy or confidentiality
obligation to the disclosing Party with respect to
such information; or
(d) is independently developed by an employee, agent,
or contractor of the receiving Party that is not
involved in any manner with the provision of
services pursuant to this Agreement and does not
have any direct or indirect access to the
Proprietary Information; or
(e) is approved for release by written authorization of
the disclosing Party; or
(f) is required to be made public by the receiving
Party pursuant to applicable law or regulation,
provided that the receiving Party shall give
sufficient notice of the requirement to the
disclosing Party to enable the disclosing Party to
seek protective orders.
29.4.4 Upon request by the disclosing Party, the receiving
Party shall return all tangible copies of Proprietary Information, whether
written, graphic, electromagnetic or otherwise, except that the receiving Party
may retain one copy for archival purposes only.
29.4.5 Notwithstanding any other provision of this Agreement,
the provisions of this subsection 29.4 shall apply to all Proprietary
Information furnished by either Party to the other in furtherance of the purpose
of this Agreement, even if furnished before the Effective Date.
29.5 Choice of Law
The construction, interpretation and performance of this Agreement
shall be governed by and construed in accordance with the laws of the state in
which this Agreement is to be performed, except for its conflicts of laws
provisions. In addition, insofar as and to the extent federal law may apply,
federal law will control.
29.6 Taxes
Each Party purchasing services hereunder shall pay or otherwise be
responsible for all federal, state, or local sales, use, excise, gross receipts,
transaction or similar taxes, fees or
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
surcharges levied against or upon such purchasing Party (or the providing Party
when such providing Party is permitted to pass along to the purchasing Party
such taxes, fees or surcharges), except for any tax on either Party's corporate
existence, status or income. Whenever possible, these amounts shall be billed as
a separate item on the invoice. To the extent a sale is claimed to be for resale
tax exemption, the purchasing Party shall furnish the providing Party a proper
resale tax exemption certificate as authorized or required by statute or
regulation by the jurisdiction providing said resale tax exemption. Failure to
timely provide said resale tax exemption certificate will result in no exemption
being available to the purchasing Party.
29.7 Assignment
Either Party may assign this Agreement or any of its rights or
obligations hereunder to a third party, including, without limitation, its
parent or other affiliate, with the other Party's prior written consent, which
consent shall not be unreasonably withheld upon the provision of reasonable
evidence by the proposed assignee that it has the resources, ability, and
authority to provide satisfactory performance under this Agreement. Any
assignment or delegation in violation of this subsection 29.7 shall be void and
ineffective and constitute a default of this Agreement.
29.8 Billing and Payment; Disputed Amounts
29.8.1 Except as may otherwise be provided in this Agreement,
each Party shall submit on a monthly basis an itemized statement of charges
incurred by the other Party during the preceding month(s) for services rendered
hereunder. Payment of billed amounts under this Agreement, whether billed on a
monthly basis or as otherwise provided herein, shall be due, in immediately
available U.S. funds, within thirty (30) days of the date of such statement.
29.8.2 Although it is the intent of both Parties to submit
timely and accurate statements of charges, failure by either Party to present
statements to the other Party in a timely manner shall not constitute a breach
or default, or a waiver of the right to payment of the incurred charges, by the
billing Party under this Agreement, and the billed Party shall not be entitled
to dispute the billing Party's statement(s) based on such Party's failure to
submit them in a timely fashion.
29.8.3 If any portion of an amount due to a Party (the
"Billing Party") under this Agreement is subject to a bona fide dispute between
the Parties, the Party billed (the "Non-Paying Party") shall within thirty (30)
days of its receipt of the invoice containing such disputed
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
amount give notice to the Billing Party of the amounts it disputes ("Disputed
Amounts") and include in such notice the specific details and reasons for
disputing each item. The Non-Paying Party shall pay when due (i) all undisputed
amounts to the Billing Party and (ii) all Disputed Amounts into an interest
bearing escrow account with a third Party escrow agent mutually agreed upon by
the Parties.
29.8.4 If the Parties are unable to resolve the issues related
to the Disputed Amounts in the normal course of business within ninety (90) days
after delivery to the Billing Party of notice of the Disputed Amounts, each of
the Parties shall appoint a designated representative who has authority to
settle the dispute and who is at a higher level of management than the persons
with direct responsibility for administration of this Agreement. The designated
representatives shall meet as often as they reasonably deem necessary in order
to discuss the dispute and negotiate in good faith in an effort to resolve such
dispute. The specific format for such discussions will be left to the discretion
of the designated representatives, however all reasonable requests for relevant
information made by one Party to the other Party shall be honored.
29.8.5 If the Parties are unable to resolve issues related to
the Disputed Amounts within forty-five (45) days after the Parties' appointment
of designated representatives pursuant to subsection 29.9, then either Party may
file a complaint with the Commission to resolve such issues or proceed with any
other remedy pursuant to law or equity. The Commission may direct release of any
or all funds (including any accrued interest) in the escrow account, plus
applicable late fees, to be paid to either Party.
29.8.6 The Parties agree that all negotiations pursuant to
this subsection 29.8 shall remain confidential and shall be treated as
compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence.
29.8.7 Any undisputed amounts not paid when due shall accrue
interest from the date such amounts were due at the lesser of (i) one and
one-half percent (1-1/2%) per month or (ii) the highest rate of interest that
may be charged under applicable law.
29.9 Dispute Resolution
29.9.1 Any dispute between the Parties regarding the
interpretation or enforcement of this Agreement or the provision of any services
hereunder shall be addressed by good faith negotiation between the Parties, in
the first instance, according to the escalation
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
procedures in Subsection 29.9.2 below, other than billing disputes which shall
be addressed according to the procedures established in Section 29.8. Should
such negotiations fail to resolve the dispute in the appropriate time periods as
specified in Subsection 29.9.2, either Party may initiate an appropriate action
in any regulatory or judicial forum of competent jurisdiction. The Parties may
also agree to other informal resolution processes for specific circumstances
prior to initiating a regulatory or judicial action.
29.9.2 Escalation Procedures
The Parties shall submit any dispute between BA and MGC for
resolution to an Inter-Company Review Board consisting of one representative
from each Party at the vice-president or above level (or such lower level as the
Parties agree) according to the following procedures:
(a) Each Party must designate its initial
representative to the Inter-Company Review Board
within (15) days of the Effective Date of this
Agreement.
(b) A Party may change its designee, or select an
alternative designee, on one (1) day's notice to
the other Party.
(c) A dispute will be deemed submitted to the
Inter-Company Review Board on the date a Party
requests Inter-Company Review Board action in
writing, transmitted by facsimile as set forth in
Section 29.10 of the Agreement and to each Party's
representative designated pursuant to Section
29.9.2 (a).
(d) If the Inter-Company Review Board is unable to
resolve a service affecting dispute within five
business days (or such longer period as agreed to
in writing by the Parties) of submission to it of
the dispute, a Party may initiate a judicial or
regulatory proceeding in accordance with the
requirements of Section 29.9. 1.
(e) If the Inter-Company Review Board is unable to
resolve a non-service affecting dispute within
thirty (30) days (or such longer period as agreed
to in writing by the Parties) of submission to it
of the dispute, a Party may initiate a judicial or
regulatory proceeding in accordance with the
requirements of Section 29.9. 1.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
(f) The Parties agree that all negotiations pursuant to
this Section 29.9 shall be confidential and shall
be treated as compromise and settlement
negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence.
29.10 Notices
Except as otherwise provided in this Agreement, notices given by one
Party to the other Party under this Agreement shall be in writing and shall be
(a) delivered personally, (b) delivered by express delivery service, (c) mailed,
certified mail or first class U.S. mail postage prepaid, return receipt
requested, or (d) delivered by telecopy to the following addresses of the
Parties:
To MGC:
MGC COMMUNICATIONS, INC.
3301 North Buffalo Drive
Las Vegas, Nevada 89129
Attn: Kent F. Heyman
Vice President and General Counsel
Facsimile: 702-310-5689
To BA:
BELL ATLANTIC
1095 Avenue of Americas
40th Floor
New York, NY 10036
Attn: President - Telecommunications Industry Services
Facsimile: (212) 597-2585
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
with a copy to:
BELL ATLANTIC
1095 Avenue of Americas
40th Floor
New York, NY 10036
Attn: General Counsel
Facsimile: (212) 597-2560
or to such other address as either Party shall designate by proper notice.
Notices will be deemed given as of the earlier of (i) the date of actual
receipt, (ii) the next business day when notice is sent via express mail or
personal delivery, (iii) three (3) days after mailing in the case of first class
or certified U.S. mail, or (iv) on the date set forth on the confirmation in the
case of telecopy.
29.11 Section 252(i) Obligations
29.11.1 To the extent required under Applicable Law, BA shall
make available without unreasonable delay to MGC any individual interconnection,
service or network element contained in any agreement to which it is a party
that is approved by the Commission pursuant to Section 252 of the Act, upon the
same rates, terms, and conditions as those provided in the agreement.
29.11.2 To the extent the exercise of the foregoing options
requires a rearrangement of facilities by the providing Party, the opting Party
shall be liable for the non-recurring charges associated therewith.
29.11.3 The Party electing to exercise such option shall do so
by delivering written notice to the first Party. Upon receipt of said notice by
the first Party, the Parties shall amend this Agreement to provide the same
rates, terms and conditions to the notifying Party for the remaining term of
this Agreement; provided, however, that the Party exercising its option under
this subsection 29.11 must continue to provide the same services or arrangements
to the first Party as required by this Agreement, subject either to the rates,
terms, and conditions applicable to the first Party in its agreement with the
third party or to the rates, terms, and conditions of this Agreement, whichever
is more favorable to the first Party in its sole determination.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
29.12 Joint Work Product
This Agreement is the joint work product of the Parties and has been
negotiated by the Parties and their respective counsel and shall be fairly
interpreted in accordance with its terms and, in the event of any ambiguities,
no inferences shall be drawn against either Party.
29.13 No Third Party Beneficiaries; Disclaimer of Agency
This Agreement is for the sole benefit of the Parties and their
permitted assigns, and nothing herein express or implied shall create or be
construed to create any third-party beneficiary rights hereunder. Except for
provisions herein expressly authorizing a Party to act for another, nothing in
this Agreement shall constitute a Party as a legal representative or agent of
the other Party, nor shall a Party have the right or authority to assume, create
or incur any liability or any obligation of any kind, express or implied,
against or in the name or on behalf of the other Party unless otherwise
expressly permitted by such other Party. Except as otherwise expressly provided
in this Agreement, no Party undertakes to perform any obligation of the other
Party, whether regulatory or contractual, or to assume any responsibility for
the management of the other Party's business.
29.14 No License
29.14.1 Except as may be expressly provided herein, nothing in
this Agreement shall be construed as the grant of a license with respect to any
patent, copyright, trademark, trade name, trade secret or any other proprietary
or intellectual property now or hereafter owned, controlled or licensable by
either Party. Neither Party may use any patent, copyrightable materials,
trademark, trade name, trade secret or other intellectual property right of the
other Party except in accordance with the terms of a separate license agreement
between the Parties granting such rights.
29.14.2 Neither Party shall have any obligation to defend,
indemnify or hold harmless, or acquire any license or right for the benefit of,
or owe any other obligation or have any liability to, the other Party or its
customers based on or arising from any, claim, demand, or proceeding by any
third party alleging or asserting that the use of any circuit, apparatus, or
system, or the use of any software, or the performance of any service or method,
or the provision of any facilities by either Party under this Agreement, alone
or in combination with that of the other Party, constitutes direct, vicarious or
contributory infringement or inducement to infringe, misuse or misappropriation
of any patent, copyright, trademark, trade secret, or any other
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
proprietary or intellectual property right of any Party or third party. Each
Party, however, shall offer to the other reasonable cooperation and assistance
in the defense of any such claim.
29.14.3 NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT,
THE PARTIES AGREE THAT NEITHER PARTY HAS MADE, AND THAT THERE DOES NOT EXIST,
ANY WARRANTY, EXPRESS OR IMPLIED, THAT THE USE BY THE PARTIES OF THE OTHER'S
FACILITIES, ARRANGEMENTS, OR SERVICES PROVIDED UNDER THIS AGREEMENT SHALL NOT
GIVE RISE TO A CLAIM BY ANY THIRD PARTY OF INFRINGEMENT, MISUSE, OR
MISAPPROPRIATION OF ANY INTELLECTUAL PROPERTY RIGHT OF SUCH THIRD PARTY.
29.15 Technology Upgrades
Nothing in this Agreement shall limit BA's ability to upgrade its
network through the incorporation of new equipment, new software or otherwise.
BA shall provide MGC written notice at least ninety (90) days prior to the
incorporation of any such upgrades in BA's network that will materially affect
MGC's service, and shall exercise reasonable efforts to provide at least one
hundred eighty (180) days notice where practicable. In addition, BA shall comply
with the FCC Network Disclosure rules set forth in the FCC Regulations to the
extent applicable. MGC shall be solely responsible for the cost and effort of
accommodating such changes in its own network.
29.16 Survival
The Parties' obligations under this Agreement which by their nature are
intended to continue beyond the termination or expiration of this Agreement
shall survive the termination or expiration of this Agreement.
29.17 Entire Agreement
The terms contained in this Agreement and any Schedules, Exhibits,
tariffs and other documents or instruments referred to herein, which are
incorporated into this Agreement by this reference, constitute the entire
agreement between the Parties with respect to the subject matter hereof,
superseding all prior understandings, proposals and other communications, oral
or written. Neither Party shall be bound by any preprinted terms additional to
or different from those in this Agreement that may appear subsequently in the
other Party's form documents, purchase orders, quotations, acknowledgments,
invoices or other communications.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
29.18 Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.
29.19 Modification, Amendment, Supplement, or Waiver
No modification, amendment, supplement to, or waiver of the Agreement
or any of its provisions shall be effective and binding upon the Parties unless
it is made in writing and duly signed by the Parties. A failure or delay of
either Party to enforce any of the provisions hereof, to exercise any option
which is herein provided, or to require performance of any of the provisions
hereof shall in no way be construed to be a waiver of such provisions or
options.
29.20 Successors and Assigns
This Agreement shall be binding on and inure to the benefit of the
Parties and their respective legal successors and permitted assigns.
29.21 Publicity and Use of Trademarks or Service Marks
Neither Party nor its subcontractors or agents shall use the other
Party's trademarks, service marks, logos or other proprietary trade dress in any
advertising, press releases, publicity matters or other promotional materials
without such Party's prior written consent.
29.22 Restructured/New Rates
Nothing in this Agreement shall affect or limit (i) BA's right with
respect to a new element or service not offered to MGC under this Agreement on
the Effective Date of this Agreement, or (ii) BA's right to modify, restructure
or change an existing element or service and to charge MGC such rates as
approved by the PSC for such modified, restructured or altered element or
service. BA shall be entitled to recover from MGC such new, additional or
restructured rates, charges or prices effective from the date when and to the
extent BA seeks approval from the PSC of such new, additional or restructured
rates, charges or prices, either pursuant to a tariff filing or other
application to the PSC, subject to later true-up on the date such new additional
or restructured rates, charges or prices are actually approved by the PSC.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
29.23 Integrity of BELL ATLANTIC Network
The Parties acknowledge that BELL ATLANTIC, at its election, may deploy
fiber throughout its network and that such fiber deployment may inhibit or
facilitate MGC's ability to provide service using certain technologies.
Notwithstanding any other provision of this Agreement, BELL ATLANTIC shall have
the right to deploy, upgrade, migrate and maintain its network at its
discretion.
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MGC COMMUNICATIONS, INC. - BELL ATLANTIC Interconnection Agreement
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of this Third day of April, 1998.
<TABLE>
MGC COMMUNICATIONS, INC. BELL ATLANTIC - NEW YORK
<S> <C>
By: By:
-------------------------------------- --------------------------------------
Printed: Kent F. Heyman Printed: Jacob J. Goldberg
--------------------------------- -------------------------------------
Title: Vice President and General Counsel Title: President - Telecommunications
---------------------------------- -----------------------------------------
Industry Services
----------------------------------
</TABLE>
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<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name State of Organization or Incorporation
- ---- --------------------------------------
Broadview Networks, Inc. New York corporation
Open Support Systems, LLC Connecticut limited liability company
Broadview Networks of Delware corporation
Massachusetts, Inc.
Broadview Networks of Virginia corporation
Virginia, Inc.
<PAGE>
Exhibit 23.1
PRICEWATERHOUSECOOPERS [LOGO]
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York NY 10019-6013
Telephone (212) 259 1000
Facsimile (212) 259 1301
CONSENT OF INDEPENDENT ACCOUNTANTS
--------------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated February 4, 2000, except as to Note 18, which is as of March 20,
2000, relating to the financial statements and financial statement schedule of
Broadview Networks Holdings Inc., which appear in such Registration Statement.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BROADVIEW
NETWORKS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,572,220
<SECURITIES> 0
<RECEIVABLES> 7,854,832
<ALLOWANCES> (1,302,491)
<INVENTORY> 0
<CURRENT-ASSETS> 14,045,317
<PP&E> 16,470,360
<DEPRECIATION> (872,766)
<TOTAL-ASSETS> 30,709,026
<CURRENT-LIABILITIES> 15,336,898
<BONDS> 7,979,027
38,888,367
52,849
<COMMON> 76,954
<OTHER-SE> (36,805,069)
<TOTAL-LIABILITY-AND-EQUITY> 30,709,026
<SALES> 37,203,295
<TOTAL-REVENUES> 37,203,295
<CGS> 33,964,926
<TOTAL-COSTS> 75,351,065
<OTHER-EXPENSES> 41,386,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (517,210)
<INCOME-PRETAX> (37,630,560)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,630,560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,630,560)
<EPS-BASIC> (6.73)
<EPS-DILUTED> (6.73)
</TABLE>
<PAGE>
Financial Statement Schedule 99.1
PRICEWATERHOUSECOOPERS [LOGO]
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York NY 10019-6013
Telephone (212) 259 1000
Facsimile (212) 259 1301
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Broadview Networks Holdings, Inc and Subsidiaries:
Our audits of the consolidated financial statements referred to in our report
dated February 4, 1999 appearing in this Registration Statement also included an
audit of the financial statement schedule listed in Item 16 in this Registration
Statement. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, NY
February 4, 2000
<PAGE>
Broadview Networks Holdings, Inc. and Subsidiaries
For the years ended December 31, 1999, 1998 and 1997
Rule 12-09 Valuation and qualifying accounts and reserves
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 | Additions |
- ------------------------------------------------------------------------------------------------------------------------------------
Description Balance at Charged to costs and Charged to other accounts -- Deductions -- Balance at end of
Beginning of expenses describe Describe period
Period.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful 382,302 3,955,938 Write Offs 3,035,749 1,302,491
Accounts
Allowance for Customer 85,000 Revenue -- 15,000 100,000
Credits
Tax Valuation Allowance 3,633,910 NOL Increase -- 9,227,938 12,861,848
- -----------------------------------------------------------------------------------------------------------------------------------
Total 4,016,212 4,040,938 9,242,938 3,035,749 14,264,339
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 | Additions |
- ------------------------------------------------------------------------------------------------------------------------------------
Description Balance at Charged to costs and Charged to other accounts Deductions - Balance at end
Beginning of expenses -describe Describe of period
Period.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful 138,518 528,412 Write Offs 284,628 382,302
Accounts
Tax Valuation Allowance 2,292,295 NOL Increase - 1,341,615 3,633,910
---------------------------------------------------------------------------------------------------------
2,430,813 528,412 1,341,615 284,628 4,016,212
Total =========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 | Additions |
- ------------------------------------------------------------------------------------------------------------------------------------
Description Balance at Charged to costs and Charged to other accounts Deductions - Balance at end
Beginning of expenses -describe Describe of period
Period.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful 173 217,786 Write Offs 79,441 138,518
Accounts
Tax Valuation Allowance 974,343 NOL Increase - 1,317,952 2,292,295
---------------------------------------------------------------------------------------------------------
974,516 217,786 1,317,952 79,441 2,430,813
Total =========================================================================================================
</TABLE>
