<PAGE>
As filed with the Securities and Exchange Commission on April 7, 2000
Registration Statement No. 333-96391
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
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
---------------
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock ($0.01 par value per
share).......................... 8,050,000 $161,000,000 $42,504
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(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) 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 April 7, 2000.
[LOGO OF BROADVIEW NETWORKS]
7,000,000 Shares
Broadview Networks Holdings, Inc.
Common Stock
-----------
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.
-----------
<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
-----------
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.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Corporate Information.................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 24
Management............................................................... 47
Certain Transactions..................................................... 56
Principal Stockholders................................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 69
Underwriting............................................................. 71
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find More Information about Broadview Networks............. 73
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.
. 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.
3
<PAGE>
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 bill.
. 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;
. reflects 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.
Recent Events
On March 31, 2000, we entered into a non-binding letter of intent with GE
Capital and First Union National Bank detailing a proposed senior credit
facility in an aggregate principal amount of $150 million. If finalized, it is
expected that the proceeds from this financing would be used in connection with
the deployment and expansion of our telecommunications network and that this
facility would replace our existing vendor credit facility with NTFC Capital
Corporation.
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) (19,652)
Cash used in investing activities................. (249) (474) (14,252)
Cash provided by financing activities............. 1,416 12,064 36,424
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. Although we have entered into a non-binding letter of
intent for a proposed $150 million senior credit facility, there is no
guarantee that we will be able to finalize this proposed financing. 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.
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 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
9
<PAGE>
facilities, in a timely, efficient and cost-effective manner. We have entered
into three interconnection agreements with Bell Atlantic covering the New York,
Massachusetts and Pennsylvania 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. Our Pennsylvania agreement will expire in August
2000, unless either party requests renegotiation prior to that time, in which
case the agreement would remain in effect on a month to month basis until a new
agreement is reached or until the terms and conditions of an agreement are
resolved by the Pennsylvania Public Utility Commission. 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. Occasionally we have experienced delays or other problems
in receiving these facilities and services. Any failure on the part of third
parties to adequately supply us or maintain the quality of their facilities and
services in the future could cause our customers to experience delays in
service and lower levels of customer care, which could cause them to switch to
other providers. We are particularly dependent on third parties because:
. 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
. 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
10
<PAGE>
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.
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.
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 and, if obtained, our
proposed senior credit 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;
11
<PAGE>
. 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.
If finalized, we expect that our proposed senior credit facility with GE
Capital and First Union National Bank would replace our vendor financing
facility. However, we also expect that any agreement entered into in connection
with this proposed financing would similarly restrict or prohibit our ability
and the ability of our subsidiaries to engage in these activities.
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.
The telecommunications industry is undergoing rapid technological changes, and
our failure to keep up with such changes could cause us to lose customers and
impede our ability to attract new customers.
The telecommunications industry is undergoing rapid and significant changes
in technology, customer requirements and preferences and our failure to keep up
with such changes could cause us to lose customers and impede our ability to
attract new customers. In particular, DSL technology does not have widely
accepted standards, and alternative technologies for providing high speed data
transport may develop and be superior to the DSL technology on which we rely.
New technologies could also reduce the competitiveness of our OPENnet software
systems and our network. We may be required to select one technology over
another, but at a time when it would be impossible to predict with any
certainty which technology will prove to be the most economic, efficient or
capable of attracting customer usage. Subsequent technological developments may
require unbudgeted upgrades or additional products that could be expensive and
time consuming.
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 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
12
<PAGE>
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 may be extremely volatile given the industry in which we operate
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.
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.
13
<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. Information on
our internet website does not constitute part of this prospectus.
We have filed applications to register the Broadview Networks name and logo
as trademarks. 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.
14
<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>
15
<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 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.
16
<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.
17
<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) (19,652)
Cash used in investing
activities............. (14) (249) (474) (14,252)
Cash provided by financ-
ing activities......... 401 1,416 12,064 36,424
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>
18
<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 dial tone 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 incur significant expenditures and sustain continued
operating losses and negative cash flow from operations for the next few years.
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.
19
<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. In addition, the
provision for doubtful accounts increased by 700% from $0.5 million in 1998 to
$4.0 million in 1999 while as a percentage of revenue, this expense increased
from 4.6% of revenue in 1998 to 10.8% of revenue in 1999. The increase resulted
from the rapid growth in operations prior to the establishment of formal client
acceptance, credit and collection procedures, which were implemented at the end
of the fourth quarter of 1999. We expect that with the implementation of formal
client acceptance, credit and collection procedures, bad debt expense as a
percentage of revenue will decline over time. 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.
20
<PAGE>
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 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.
21
<PAGE>
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.
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 $0.001 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.
On March 31, 2000, we entered into a non-binding letter of intent with GE
Capital and First Union National Bank detailing a proposed senior credit
facility in an aggregate principal amount of $150.0 million. If finalized, we
expect that the proceeds from this financing would be used in connection with
the deployment and expansion of our network and that this facility would
incorporate
22
<PAGE>
or replace our vendor credit facility. We have not entered into an agreement
with respect to this proposed financing,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.
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.
23
<PAGE>
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 those suppliers and incorporate it into its own
systems. 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
24
<PAGE>
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.
25
<PAGE>
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
26
<PAGE>
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
27
<PAGE>
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.
28
<PAGE>
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.
29
<PAGE>
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.
30
<PAGE>
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
31
<PAGE>
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.
32
<PAGE>
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 three
interconnection agreements with Bell Atlantic covering the New York,
Massachusetts and Pennsylvania 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. Our agreement covering the Pennsylvania market expires August 31,
2000, unless either party requests renegotiation prior to that time, in which
case the agreement would remain in effect on a month to month basis until a new
agreement is reached or until the terms and conditions of an agreement are
resolved by the Pennsylvania Public Utility
33
<PAGE>
Commission. 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 New Jersey, Virginia, Maryland, Rhode Island, Delaware,
Washington, D.C. and New Hampshire.
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.
34
<PAGE>
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 telephone number when they
transfer phone service 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.
35
<PAGE>
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;
. Larger and more competitive companies resulting from the continuing
trend toward business combinations and alliances in the communications
industry;
. 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 of other ILECs 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
Telecommunications 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.
36
<PAGE>
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 Telecom,
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
37
<PAGE>
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 Telecommunications Act. The purpose of this
legislation was to significantly deregulate the telecommunications industry,
and foster increased competition among carriers. Because implementation of the
Telecommunications 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 Telecommunications Act, any entity may enter a telecommunications
market, subject to reasonable state safety, quality and consumer protection
regulations. The Telecommunications 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 necessary for interconnection and
access to components of the ILECs' networks 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;
38
<PAGE>
. 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 three interconnection agreements with Bell Atlantic
covering the New York, Massachusetts and Pennsylvania 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. Our Pennsylvania agreement will expire in
August 2000, unless either party requests renegotiation prior to that time, in
which case the agreement would remain in effect on a month to month basis until
a new agreement is reached or until the terms and conditions of an agreement
are resolved by the Pennsylvania Public Utility Commission. 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 and
Pennsylvania interconnection agreements. 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 Telecommunications Act has resulted in comprehensive changes in the
regulatory environment for the communications industry and has materially
affected the competitive environment. The FCC is charged with establishing
guidelines to implement the Telecommunications 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
39
<PAGE>
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 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 colocate 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 Telecommunications 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
40
<PAGE>
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.
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
41
<PAGE>
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.
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
42
<PAGE>
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. To date
every district court and court of appeals that has reviewed these cases on the
merits, including the 5th, 7th and 9th Circuits, have determined reciprocal
compensation is owed. 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. On March 24,
2000, the Court of Appeals vacated and remanded to the FCC its Declaratory
Ruling that internet bound calls are not local calls for which reciprocal
compensation is owed. The Court determined that the FCC had not provided a
reasonable basis for not treating the calls as local calls. 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,
43
<PAGE>
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 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 compliant 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 31, 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, the District of Columbia
and 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
44
<PAGE>
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.
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.
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 Telecommunications 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, trademarks, 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.
45
<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 31, 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
New York, NY.......... 2,800 January 2002, no renewal Sales Office
option
White Plains, NY...... 2,000 March 2001, no renewal Sales Office
option
Boston, MA............ 12,500 April 2010, with one Network, Sales Office
five-year renewal
option
Newark, NJ............ 24,800 10.5 years after Technology Lab,
facilities are ready, Offices
with one 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.
Our 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 our entering into a lease with respect to the 224 Harrison
Property.
46
<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.
47
<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.
48
<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-Johnston, 11,405 stock options to Philip Smith and
22,808 stock options to Joseph Walsh. Messrs. Lawson-Johnston, 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.
49
<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 is also 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.
50
<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
Name and Principal Underlying All Other
Position Year Salary Bonus Options Compensation
- ------------------ ---- ------- ------ ------------ ------------
<S> <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
51
<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.
52
<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.
53
<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
54
<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.
55
<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.
56
<PAGE>
Series C Bridge Financing
On February 26, 1999, 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. On April 23, 1999, the loan, including accrued
interest, was converted into shares of Series C preferred stock.
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
57
<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.
58
<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.
On March 31, 2000, we entered into a non-binding letter of intent with GE
Capital and First Union National Bank for a proposed senior credit facility in
an aggregate principal amount of $150 million. If finalized, we expect that
this facility would incorporate or replace our vendor credit facility and that
the proceeds from this financing would be used in connection with the
deployment and expansion of our telecommunications network. We also expect that
any agreement entered into in connection with the proposed financing would
contain customary restrictive covenants and events of default. We have not
entered into an agreement with respect to this proposed financing, 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.
59
<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.
60
<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.
61
<PAGE>
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.
62
<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 price is $1.74,
subject to the investors' anti-dilution protection rights. The Series A
preferred stock automatically converts:
63
<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 price is $3.26, 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
price is $4.4658, 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
64
<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 price is $4.66126, 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.
65
<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 the holders of at
least two-thirds 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.
66
<PAGE>
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.
67
<PAGE>
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.
68
<PAGE>
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>
224,044 Immediately after the date of this prospectus
33,392 90 days from the date of this prospectus (Rule 144)
25,369,680 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
69
<PAGE>
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 989,723 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 25,369,680 shares
in the aggregate, together with the holders of options to purchase 4,502,370
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.
70
<PAGE>
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 a number of its
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
350,000 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
71
<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.
72
<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.
73
<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 April 4, 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
============ ============
</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
$20,000 and $9,874,700 of non-cash
compensation in 1998 and 1999,
respectively)........................ 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>
The accompanying notes are an integral part of these consolidated financial
statements.
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE SECURITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Mandatorily Redeemable Securities
---------------------------------------------------- -----------------------------------
Series C Series A and B
Convertible Total Convertible
Preferred Stock Common Stock Mandatorily Preferred Stock Common Stock
--------------------- ------------------ Redeemable ----------------- -----------------
Shares Amount Shares Amount Securities Shares Amount Shares Amount
--------- ----------- ------- ---------- ----------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ 4,495,002 $44,950
Issuance of
common stock in
connection with
business
acquisition..... 290,000 2,900
Issuance of
common stock.... 1,441,300 14,413
Issuance of
common stock
options for non-
compete
agreements......
Issuance of
common stock
options for
consulting
services........
Net loss........
--------- ------- --------- -------
Balance at
December 31,
1997............ 6,226,302 62,263
Issuance of
common stock
options for
consulting
services........
Issuance of
restricted
common stock in
connection with
business
acquisition..... 551,580 5,516
Deferred
compensation
related to stock
options.........
Amortization of
deferred
compensation....
Issuance of
common stock.... 87,000 870
Exercise of
common stock
options......... 116,000 1,160
Issuance of
Series A
convertible
preferred
stock........... 3,446,070 $34,461
Issuance of
Series B
convertible
preferred
stock........... 1,838,799 18,388
Net loss........
--------- ------- --------- -------
Balance at
December
31,1998......... 5,284,869 52,849 6,980,882 69,809
Amortization of
deferred
compensation....
Purchase of
treasury stock..
Issuance of
common stock.... 370,000 $1,387,500 $ 1,387,500 250,000 2,500
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......... 5,392 54
Exercise of
common stock
warrants........ 459,139 4,591
Issuance of
Series C
mandatorily
redeemable
convertible
preferred
stock........... 6,269,875 $27,795,875 27,795,875
Accretion 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 5,284,869 $52,849 7,695,413 $76,954
========= =========== ======= ========== =========== ========= ======= ========= =======
<CAPTION>
Stockholders' Equity (Deficit)
--------------------------------- ------------------------------------------------------
Receivable
from
Officer Total
Additional Treasury Stock for Stockholders'
Paid-in -------------------- Issuance Accumulated Deferred Equity
Capital Shares Amount of Stock Deficit Compensation (Deficit)
------------ --------- ---------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ $ 356,200 $ (90,472) $ 310,678
Issuance of
common stock in
connection with
business
acquisition..... 297,100 300,000
Issuance of
common stock.... 1,405,587 1,420,000
Issuance of
common stock
options for non-
compete
agreements...... 199,386 199,386
Issuance of
common stock
options for
consulting
services........ 10,518 10,518
Net loss........ (1,302,051) (1,302,051)
------------ ------------- ------------- --------------
Balance at
December 31,
1997............ 2,268,791 (1,392,523) 938,531
Issuance of
common stock
options for
consulting
services........ 18,750 18,750
Issuance of
restricted
common stock in
connection with
business
acquisition..... 945,484 $ (951,000) --
Deferred
compensation
related to stock
options......... 328,000 (328,000) --
Amortization of
deferred
compensation.... 495,500 495,500
Issuance of
common stock.... 149,130 150,000
Exercise of
common stock
options......... (1,156) 4
Issuance of
Series A
convertible
preferred
stock........... 5,935,923 5,970,384
Issuance of
Series B
convertible
preferred
stock........... 5,951,082 5,969,470
Net loss........ (9,711,139) (9,711,139)
------------ ------------- ------------- --------------
Balance at
December
31,1998......... 15,596,004 (11,103,662) (783,500) 3,831,500
Amortization of
deferred
compensation.... 557,500 557,500
Purchase of
treasury stock.. (100,000) $(200,000) (200,000)
Issuance of
common stock.... 2,037,500 100,000 200,000 $(960,000) 1,280,000
Deferred
compensation
related to stock
options......... 22,335,000 (22,335,000) --
Compensation
related to
issuance
of common stock
and common stock
options at below
estimated
fair value...... 4,410,000 2,160,000 6,570,000
Exercise of
common stock
options......... 8,273 8,327
Exercise of
common stock
warrants........ (4,132) 459
Issuance of
Series C
mandatorily
redeemable
convertible
preferred
stock........... --
Accretion of
Series C
manditorily
redeemable
convertible
preferred stock
to redemption
value........... (11,092,492) (11,092,492)
Net loss........ (37,630,560) (37,630,560)
------------ --------- ---------- ----------- ------------- ------------- --------------
Balance at
December
31,1999......... $33,290,153 -- $ -- $(960,000) $(48,734,222) $(20,401,000) $(36,675,266)
============ ========= ========== =========== ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<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
Interest on notes payable to stock-
holders............................ -- -- 30,685
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) (19,651,819)
----------- ----------- ------------
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 notes
payable to stockholders.............. -- -- 4,000,000
Proceeds from issuance of Series C
mandatorily redeemable convertible
preferred stock, net................. -- -- 23,765,190
----------- ----------- ------------
Net cash provided by financing ac-
tivities.......................... 1,416,069 12,063,800 36,423,608
----------- ----------- ------------
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. Construction in progress
includes amounts incurred in the Company's expansion of its network. The
amounts include switching and colocation equipment, switching and colocation
facilities design and other indirect costs, and colocation fees. The Company
has not capitalized interest to date since the construction period has been
short in duration and the related imputed interest expense incurred during
that period was insignificant. When construction of each switch or
colocation facility is complete the balance of the assets are transferred to
network equipment, and depreciated in accordance with the Company's policy.
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
F-8
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-9
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
Conversion of notes payable, plus accrued
interest, to stockholders into Series C
mandatorily redeemable convertible
preferred stock.......................... -- -- $4,030,685
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.
F-12
<PAGE>
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 granted two employees
of BNI, 191,690 fully vested common stock options with an exercise price of
$0.001 in respect of non-compete agreements signed by the employees. The
aggregate fair value of the options was $199,386, calculated using the
Black-Scholes option pricing model, based on the following assumptions:
risk free interest rate of 5%; expected life of five years; zero dividend
yield; and expected volatility of 75%. This amount 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 incumbent local exchange carriers
for infrastructure improvements to their central offices to allow the
Company to install its equipment, which allows the Company to interconnect
with the carrier's network. 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 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.
In accordance with SFAS 123, 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 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.
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 at an exercise price of $0.001 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 (including the
conversion of $4.0 million convertible promissory notes, bearing 5%
interest per annum, issued on February 1999). 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 price is $4.4658, 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 price is
$5.28213, 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 price is $1.74, 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 price is $3.26, 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 price of $4.66126 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.
On March 31, 2000, the Company entered into a non-binding letter of intent
with GE Capital and First Union National Bank for a proposed senior credit
facility in an aggregate principal amount of $150 million. If finalized, it
is expected that the proceeds from this financing would be used in
connection with the deployment and expansion of the Company's
telecommunications network and that this facility would replace the
Company's existing vendor credit facility with NTFC Capital Corporation.
F-23
<PAGE>
[INSIDE BACK COVER]
[Map of our existing and planned networks]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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. The
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.......................................................... 14
Corporate Information.................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 24
Management............................................................... 47
Certain Transactions..................................................... 56
Principal Stockholders................................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 69
Underwriting............................................................. 71
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find More Information about Broadview Networks............. 73
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 OF 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.......................................... $ 43,000
Printing and engraving expenses............................... $ 500,000
Legal fees and expenses....................................... $ 620,000
Accountants' fees and expenses................................ $ 650,000
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........................................... $ 266,000
----------
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 $0.001 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 $459 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, 65,370 options with an exercise
price of $3.75 per share
. From October 1999 to December 1999, 407,188 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 $0.07 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
------- -----------
<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*
10.36 Lease, dated March 15, 2000 between Broadview Networks Holdings, Inc.
and 744 Elroy Investors LLC, for property located in Newark, New
Jersey
10.37 Lease, dated January 19, 2000 between Broadview Networks, Inc. and The
Port Authority of New York and New Jersey, for property located in the
World Trade Center, New York, New York
10.38 Sublease, between Broadview Networks, Inc. and C-Cube Microsystems,
Inc., leasing from Robert Martin Company, for property located in
White Plains, New York
10.39 Interconnection Agreement, dated as of March 13, 2000, between
Broadview Networks, Inc. and Bell Atlantic Pennsylvania, Inc.
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)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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
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 7th DAY OF APRIL, 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 April 7, 2000
___________________________________________ Officer (Principal
Vern M. Kennedy Executive Officer) and
Chairman of the Board of
Directors
/s/ Joel D. Gross Chief Financial Officer April 7, 2000
___________________________________________ (Principal Financial
Joel D. Gross Officer and Principal
Accounting Officer)
* Executive Vice President-- April 7, 2000
___________________________________________ Finance
Terrence J. Anderson
* Executive Vice President-- April 7, 2000
___________________________________________ Customer Relationship
Tracy W. Korman Management
* Executive Vice President-- April 7, 2000
___________________________________________ Sales and Marketing
George F. Holland
* Chief Technology Officer April 7, 2000
___________________________________________
Kenneth A. Shulman
* Chief Operating Officer April 7, 2000
___________________________________________
Eric G. Roden
* Chief Information Officer April 7, 2000
___________________________________________
Colm D. Kelly
* Director April 7, 2000
___________________________________________
Heidi B. Heiden
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director April 7, 2000
___________________________________________
Stuart A. Mencher
* Director April 7, 2000
___________________________________________
Edward W. Scott
* Director April 7, 2000
___________________________________________
Roland A. Van der Meer
</TABLE>
*By: /s/ Vern M. Kennedy
- -------------------------------------
Vern M. Kennedy
Attorney-In-Fact
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<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*
10.36 Lease, dated March 15, 2000 between Broadview Networks Holdings, Inc.
and 744 Elroy Investors LLC, for property located in Newark, New
Jersey.
10.37 Lease, dated January 19, 2000 between Broadview Networks, Inc. and The
Port Authority of New York and New Jersey, for property located in the
World Trade Center, New York, New York
10.38 Sublease, between Broadview Networks, Inc. and C-Cube Microsystems,
Inc., leasing from Robert Martin Company, for property located in
White Plains, New York.
10.39 Interconnection Agreement, dated as of March 13, 2000, between
Broadview Networks, Inc. and Bell Atlantic Pennsylvania, Inc.
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 1.1
Broadview Networks Holdings, Inc.
7,000,000 Shares Common Stock
------------------
Underwriting Agreement
----------------------
April [ ], 2000
Goldman, Sachs & Co.,
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Broadview Networks Holdings, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 7,000,000 shares (the "Firm Shares") and, at the
election of the Underwriters, up to 1,050,000 additional shares (the "Optional
Shares") of Common Stock ("Stock") of the Company (the Firm Shares and the
Optional Shares that the Underwriters elect to purchase pursuant to Section 2
hereof being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(a) A registration statement on Form S-1 (File No. 33-96391) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed
<PAGE>
by virtue of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective, each as amended at the time
such part of the Initial Registration Statement became effective or such part of
the Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration Statement";
such final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or long-term debt
of the Company or any of its subsidiaries or any material adverse change, or any
development that with the passage of time would reasonably be expected to result
in a material adverse change, in or affecting the general affairs, management,
financial position, holders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the state of Delaware, with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in
<PAGE>
any such jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the capital stock contained in the Prospectus;
and all of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(h) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
3
<PAGE>
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(n) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
(o) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(p) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of the
Company or any of its subsidiaries has been or will be affected by the Year 2000
Problem. As a result of such review, the Company has no reason to believe, and
does not believe, that the Year 2000 Problem has had or will have a material
adverse effect on the general affairs, management, the current or future
consolidated financial position, business prospects, shareholders' equity or
results of operations of the Company and its subsidiaries or has resulted or
will result in any material loss or interference with the Company's business or
operations. The "Year 2000 Problem" as used herein means any significant risk
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind is not functioning or will not function, in the case of dates or time
periods occurring after December 31, 1999, at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 1,050,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
4
<PAGE>
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by wire transfer of
Federal (same-day) funds to the account specified by the Company to Goldman,
Sachs & Co. at least forty-eight hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad
Street, New York, New York 10004 (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
New York City time, on ............., 2000 or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing, and, with
respect to the Optional Shares, 9:30 a.m., New York time, on the date specified
by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of
the Underwriters' election to purchase such Optional Shares, or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such
time and date for delivery of the Firm Shares is herein called the "First Time
of Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and each
such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, NY 10019 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5
<PAGE>
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus which shall be disapproved by you
promptly after reasonable notice thereof; to advise you, promptly
after it receives notice thereof, of the time when any amendment to
the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you with copies thereof; to advise you, promptly after
it receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and,
if the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary during
such period to amend or supplement the Prospectus in order to comply
with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time
nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act;
6
<PAGE>
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder, any securities of the Company that
are substantially similar to the Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially
similar securities (other than pursuant to employee stock option plans
existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance
sheet and statements of income, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), to make available to its stockholders consolidated summary
financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed by the Company
with the Commission or any national securities exchange on which any
class of securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on
the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or
Form 10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on
the date of this Agreement, and the Company shall at the time of
filing either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act.
7
<PAGE>
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; if the Company has elected to
rely upon Rule 462(b), the Rule 462(b) Registration Statement shall
have become effective by 10:00 P.M., Washington, D.C. time, on the
date of this Agreement; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Cravath, Swaine & Moore, counsel for the Underwriters, shall
have furnished to you written opinions substantially in the forms set
forth in Annex II(a), dated such Time of Delivery and covering the
matters in such forms, as well as such other related matters as you
may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them
to pass upon such matters;
(c) Mayer, Brown & Platt, counsel for the Company, shall have
furnished to you their written opinion substantially in the form set
forth in Annex II(b), dated such Time of Delivery;
8
<PAGE>
(d) Swidler Berlin Shereff Friedman LLP, regulatory counsel for
the Company, shall have furnished to you their written opinion
substantially in the form set forth in Annex III;
(e) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, PricewaterhouseCoopers LLP shall have furnished
to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered
prior to the execution of this Agreement is attached as Annex I(a)
hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving
a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in
the manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities;
(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or on
NASDAQ; (ii) a suspension or material limitation in trading in the
Company's securities on NASDAQ; (iii) a general moratorium on
commercial banking activities declared by either Federal or New York
State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of
a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares being delivered at such Time of Delivery on
the terms and in the manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have
been duly listed for quotation on NASDAQ;
9
<PAGE>
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from the parties listed in Schedule II
hereto, substantially to the effect set forth in Annex IV hereto in
form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
and
(l) The Company shall have furnished or caused to be furnished
to you at such Time of Delivery certificates of officers of the
Company satisfactory to you as to the accuracy of the representations
and warranties of the Company herein at and as of such Time of
Delivery, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of
this Section and as to such other matters as you may reasonably
request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
10
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election to so assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims,
11
<PAGE>
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
12
<PAGE>
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require nondefaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 6 and 8 hereof; but, if for any other reason, any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter except as provided
in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
President; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right
13
<PAGE>
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us six counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
Broadview Networks Holdings, Inc.
By:
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette
By:.................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
14
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
B BROADVIEW NETWORKS HOLDINGS, INC.
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
This Certifies that CUSIP 111384 10 3
is the owner of
FULL-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.01 A SHARE OF
COMMON STOCK OF
BROADVIEW NETWORKS HOLDINGS, INC.
(hereinafter called the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all the provisions of
the Certificate of Incorporation of the Corporaton and the amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder, by acceptance hereof assents. This Certificate is not
valid unless countersigned by the Transfer Agent and registered by the
Registrar.
In Witness Whereof, Broadview Networks Holdings, Inc. has caused this
Certificate to be signed by its proper officers and its corporate seal to be
hereunto affixed.
DATED:
/s/
COUNTERSIGNED AND REGISTERED: CHIEF EXECUTIVE OFFICER AND PRESIDENT
EQUISERVE TRUST COMPANY, N.A. [SEAL]
TRANSFER AGENT
AND REGISTRAR
BY /s/ /s/
AUTHORIZED SIGNATURE EXECUTIVE VICE PRESIDENT AND SECRETARY
<PAGE>
Exhibit 5.1
[Letterhead of Mayer, Brown & Platt]
April ___, 2000
Broadview Networks Holdings, Inc.
45-18 Court Square, Suite 300
Long Island City, New York 11101
Re: Registration Statement on Form S-1
File No. 333-96391
---------------------------------
Ladies and Gentlemen:
We have acted as counsel to Broadview Networks Holdings, Inc., a
Delaware corporation (the "Company"), in connection with the Company's
Registration Statement on Form S-1 (File No. 333-96391) (the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, covering an aggregate of 8,050,000
shares (the "Shares") of the Company's Common Stock, par value $0.01 per share,
including Shares which may be offered and sold upon the exercise of an
over-allotment option granted to the underwriters. Pursuant to an underwriting
agreement between the Company and the underwriters named therein, in
substantially the form filed as Exhibit 1.1 to the Registration Statement (the
"Underwriting Agreement"), the Company will issue and sell up to 8,050,000
Shares to such underwriters for public offering and sale.
In connection therewith, we have examined and relied upon copies of the
Company's Articles of Incorporation, as amended to date, the Company's By-Laws,
as amended to date, the Registration Statement, relevant resolutions of the
Board of Directors and shareholders of the Company, and such other documents and
instruments as we have deemed necessary for the
<PAGE>
Broadview Networks Holdings, Inc.
April __, 2000
Page 2
purposes of this opinion. In that examination, we have assumed the genuineness
of all signatures, the authenticity of all documents purporting to be originals,
and the conformity to the originals of all documents purporting to be copies.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized and, when issued and sold in accordance with the terms set
forth in the Underwriting Agreement, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, the rules and regulations of the Commission
promulgated thereunder, or Item 509 of Regulation S-K.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
COAXICOM, INC.
(a New York corporation)
1997 STOCK OPTION PLAN
SECTION 1.
PURPOSE OF THE PLAN
The purpose of the Coaxicom, Inc. 1997 Stock Option Plan (the "Plan") is
to (i) further the growth and success of Coaxicom, Inc. (the "Company") and any
entity in which the Company holds a controlling interest (its "Subsidiaries") by
enabling directors and employees of, and independent consultants and contractors
to, the Company and any of its Subsidiaries to acquire shares of the common
stock, $.01 par value per share (the "Common Stock"), of the Company, thereby
increasing their personal interest in such growth and success, and (ii) provide
a means of rewarding outstanding performance by such persons to the Company
and/or its Subsidiaries. Options granted under the Plan may be either "incentive
stock options" ("ISOs"), intended to qualify as such under the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options ("NSOs"). For purposes of the Plan, the terms
"Parent" and "Subsidiary" mean "Parent Corporation" and "Subsidiary
Corporation," respectively, as such terms are defined in Sections 425(e) and (f)
of the Code. Unless the context otherwise requires, any ISO or NSO shall
hereinafter be referred to an Option.
SECTION 2.
ADMINISTRATION; PROCEDURES; INTERPRETATION
(a) Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board").
(b) Procedures. Subject to the By-Laws of the Company, the Board shall
----------
adopt such rules and regulations as it shall deem appropriate concerning the
frequency of meetings and the administration of the Plan.
(c) Interpretation. Except as otherwise expressly provided in the Plan,
--------------
the Board shall have all powers with respect to the administration of the Plan,
including, without limitation, full power and authority to interpret the
provisions of the Plan and any Option Agreement (as defined in Section 5(b)),
------------
and to resolve all questions arising under the Plan. All decisions of the Board
shall be conclusive and binding on all participants in the Plan.
<PAGE>
SECTION 3.
SHARES OF STOCK SUBJECT TO THE PLAN
(a) Number of Shares. Subject to the provisions of Section 9 (relating to
---------
adjustments upon changes in capital structure and other corporate transactions),
the number of shares of Common Stock subject at any one time to Options granted
under the Plan, plus the number of shares of Common stock theretofore issued and
delivered pursuant to the exercise of Options granted under the Plan, shall not
exceed 10,000 shares. If and to the extent that Options granted under the Plan
terminate, expire or are canceled without having been fully exercised, new .
Options may be granted under the Plan with respect to the shares of Common Stock
covered by the unexercised portion of such terminated, expired or canceled
Options.
(b) Character of Shares. The shares of Common Stock issuable upon
-------------------
exercise of an Option granted under the Plan shall be (i) authorized but
unissued shares of Common Stock, (ii) shares of Common Stock held in the
Company's treasury or (iii) a combination of the foregoing.
(c) Reservation of Shares. The number of shares of Common Stock reserved
---------------------
for issuance under the Plan shall at no time be less than the maximum number of
shares which may be purchased at any time pursuant to outstanding options.
SECTION 4.
ELIGIBILITY
(a) General. Options may be granted under the Plan only to (i) persons
-------
who are employees of, or independent consultants to, the Company or any of its
Subsidiaries and (ii) persons who are directors of the Company or any of its
Subsidiaries Options granted to employees of the Company or any of its
Subsidiaries shall be, in the discretion of the Board, either ISOs or NSOs, and
Options granted to independent consultants or directors of the Company or any of
its Subsidiaries shall be NSOs. Notwithstanding the foregoing, Options may be
conditionally granted to a person who is a prospective employee or director of,
or independent consultant to, the Company or any of its Subsidiaries; provided,
--------
however, that any such conditional grant of an ISO to a prospective employee
- -------
shall, by its terms, become effective no earlier than the date on which such
person actually becomes an employee.
(b) Exceptions. Notwithstanding anything contained in Section 4(a) to the
----------
contrary:
(i) no ISO may be granted under the Plan to an employee who owns,
directly or indirectly (within the meaning of Sections 422(b)(6) and 425(d) of
the Code), stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its Parent, if any, or any of its
Subsidiaries, unless (A) the Option Price (as defined in Section 6(a)) for the
------------
shares of Common Stock subject to such ISO is fixed at not less than 110% of the
Fair Market Value of such shares on the date of grant (as determined in
accordance with Section 6(b)) and (B) such ISO by its terms is not exercisable
------------
after the expiration of five years from the date it is granted; and
<PAGE>
(ii) no Option may be granted to a person who has been appointed pursuant
to Section 2(a) to serve on the Board effective as of a future date at any time
------------
during the period from the date such appointment is made to the date such
appointment is to become.
SECTION 5.
GRANT OF OPTIONS
(a) General. Options may be granted under the Plan at any time and from
-------
time to time on or prior to the tenth anniversary of the Effective Date (as
defined in Section 11). Subject to the provisions of the Plan, the Board shall
----------
have plenary authority, in its discretion, to determine:
A. the persons (from among the classes of person eligible to
receive Options under the Plan) to whom Options shall be granted (the
"Optionees");
B. the time or times at which Options shall be granted;
C. the number of shares subject to each Option;
D. the Option Price of the shares subject to each Option, which
price, in the case of ISOs, shall not be less than the minimum specified
in Section 4(b)(i) or 6(a) (as applicable); and
--------------- ----
E. the time or times when each Option shall become exercisable and
the duration of the exercise period.
(b) Option Agreements. Each Option granted under the Plan shall be
------------------
designated as an ISO or an NSO and shall be subject to the terms and conditions
applicable to ISOs and/or NSOs (as the case may be) set forth in the Plan. In
addition, each Option shall be evidenced by a written agreement (an "Option
Agreement") containing such terms and conditions and in such form, not
inconsistent with the Plan, as the Board shall, in its discretion, provide. Each
Option Agreement shall be executed by the Company and the Optionee.
(c) No Evidence of Employment or Service. Nothing contained in the Plan
------------------------------------
or in any Option Agreement shall confer upon any Optionee any right with respect
to the continuation of his or her employment by or service with the Company or
any of its Subsidiaries or interfere in any way with the right of the Company or
any such Subsidiary (subject to the terms of any separate agreement to the
contrary) at any time to terminate such employment or service or to increase or
decrease the compensation of the Optionee from the rate in existence at the time
of the grant of an Option.
(d) Date of Grant. The date of grant of an Option under this Plan shall
-------------
be the date as of which the Board approves the grant; provided, however, that in
-------- -------
the case of an ISO, the date of grant shall in no event be earlier than the date
as of which the Optionee becomes an employee of the Company or one of its
Subsidiaries.
<PAGE>
SECTION 6.
OPTION PRICE
(a) General. Subject to Section 9, the price (the "Option Price") at
-------
which each share of Common Stock subject to an Option granted under the Plan may
be purchased shall be determined by the Board at the time the Option is granted;
provided , however, that in the case of an ISO, such Option Price shall in no
- -------- -------
event be less than 100% of the Fair Market Value of such share of Common Stock
on the date of grant (as determined in accordance with Section 6(b)); and
------------
provided further , however, that in the case of an NSO granted at any time after
- -------- ------- -------
the initial public offering of the Common Stock, such Option Price shall in no
event be less than 100% of the Fair Market Value of such Common Stock on the
date of grant (as determined in accordance with Section 6(b)).
------------
(b) Determination of Fair Market Value. Subject to the requirement of
----------------------------------
Section 422 of the Code, for purposes of the Plan, the "Fair Market Value" of
shares of the Common Stock shall be equal to:
(i) if such shares are publicly traded, (x) the closing price, if
applicable, or the average of the last bid and asked prices on the date
of grant or, if lower, the average of the daily closing prices (or the
means between the last bid and asked prices for days on which no sales
took place) of the 30 business days immediately preceding the date of
grant, in the over-the-counter market as reported by NASDAQ or (y) if the
Common Stock is then traded on a national securities exchange, the
average of the high and low prices on the date of grant or, if lower, the
average of the daily closing prices (or the means between the last bid
and asked prices for days on which no sales took place) of the 30
business days immediately preceding the date of grant, on the principal
national securities exchange on which such security is so traded; or
(ii) if there is no public trading market for such shares, the
fair market value of such shares on the date of grant as determined by
the Board, without regard in respect to any such determination for any
discount, including, without limitation, for the fact that such share is
held by a minority stockholder, that there is no public market for the
stock or, if there were a public market for such stock, such stock would
be "restricted" as defined under Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), after taking
into consideration all other factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arms' length.
Notwithstanding anything contained in the Plan to the contrary, all
determinations pursuant to Section 6(b)(ii) shall be made without regard to any
----------------
restriction other than a restriction which, by its terms, will never lapse.
(c) Rend of NSOs. Subsequent to the date of grant of any NSO, the Board
------------
may, at its discretion and with the consent of the Optionee, establish a new
Option Price for such NSO so as to increase or decrease the Option Price of such
NSO.
<PAGE>
SECTION 7.
EXERCISABILITY OF OPTIONS
(a) Board Determination. Each Option granted under the Plan shall be
----- -------------
exercisable at such time or times, or upon the occurrence of such event or
events, and for such number of shares subject to the Option, as shall be
determined by the Board and set forth in the Option Agreement evidencing such
Option; provided, however, that if the Company files a registration statement
-------- -------
under the Securities Act for the initial public offering of its securities, no
Option granted under the Plan shall be exercisable during the 180-day period
immediately following the effective date of such registration statement. Subject
to the proviso of the immediately preceding sentence, if an Option is not at the
time of grant immediately exercisable, the Board may (i) in the Option Agreement
evidencing such Option, provide for the acceleration of the exercise date or
dates of the subject Option upon the occurrence of specified events and/or (ii)
at any time prior to the complete termination of an Option, accelerate the
exercise date or dates of such Option.
(b) Automatic Termination of Option. The unexercised portion of any
-------------------------------
Option granted under the Plan shall automatically terminate and be of no further
force of effect upon the first to occur of the following:
(i) the tenth anniversary of the date on which such Option is
granted or, in the case of any ISO granted to a person described in
Section 4(b), the fifth anniversary of the date on which such ISO is
------------
granted;
(ii) in the case of an ISO, unless the Optionee has elected to
convert such ISO into an NSO, the expiration of three months from the
date that the Optionee ceased to be an employee of the Company or any of
its Subsidiaries (other than as a result of an Involuntary Termination
(as defined in clause iii) below)); provided, however, that if the
----------
Optionee shall die during such three-month period, the time of
termination of the unexercised portion of such Option shall be the
expiration of 12 months from the date that such Optionee ceased to be an
employee or director of, or independent consultant or contractor to, the
Company or any of its Subsidiaries;
(iii) in the case of an ISO, unless the Optionee has elected to
convert such ISO into an NSO, the expiration of 6 months from the date
that the Optionee ceased to be an employee of the Company or any of its
Subsidiaries, if such termination is due to such Optionee's death or
permanent and total disability (within the meaning of Section 22(e)(3) of
the Code) (an "Involuntary Termination");
(iv) the expiration of such period of time or the occurrence of
such event as the Board in its discretion may provide in the Option
Agreement;
(v) except to the extent permitted by Section 9(b)(ii), the date
----------------
on which an Option or any part thereof or right of privilege relating
thereto is transferred (otherwise than by will or the laws of descent
and distribution), assigned, pledged, hypothecated, attached or
otherwise disposed of by the Optionee; and
(vi) if the Optionee is an employee of the Company, upon
Termination for Cause.
<PAGE>
The Board shall have the power to determine what constitutes a Termination For
Cause for purposes of the Plan and the date upon which such Termination For
Cause shall occur. All such determinations shall be final and conclusive and
binding upon the Optionee. Anything contained in the Plan to the contrary
notwithstanding, unless otherwise provided in an Option Agreement, no Option
granted under the Plan shall be affected by any change of duties or position of
the Optionee (including a transfer to or from the Company or one of its
Subsidiaries), so long as such Optionee continues to be an employee or
director of, or independent consultant or contractor to, the Company or one of
its Subsidiaries.
(c) Limitations on Exercise. Anything contained in the Plan to the
-----------------------
contrary notwithstanding, an ISO granted under the Plan to an Optionee shall not
be considered an ISO to the extent that the aggregate Fair Market Value on the
date of grant of such ISO (as determined in accordance with Section 6(b)) of all
-------------
stock with respect to which incentive stock options are exercisable for the
first time by such Optionee during any calendar year (under all plans of the
Company and its Subsidiaries) exceeds $100,000.
SECTION 8.
PROCEDURE FOR EXERCISE
(a) Payment. At the time an Option is granted under the Plan, the Board
-------
may, in its discretion, permit the Optionee to utilize one or more of the
following forms of payment upon the exercise of an Option:
(i) cash or personal or certified check payable to the Company
in an amount equal to the aggregate Option Price of the shares with
respect to which the Option is being exercised;
(ii) stock certificates representing shares of Common Stock
having a Fair Market Value on the date of exercise (as determined in
accordance with Section 6(b)) equal to the aggregate Option Price of the
------------
shares with respect to which the Option is being excised; or
(iii) a combination of the methods set forth in clauses (i) and
(ii).
(b) Notice. An Optionee may exercise an Option granted under the Plan in
------
whole or in part (but for the purchase of whole shares only), as provided in the
Option Agreement evidencing the Option, by delivering a written notice (the
"Notice") to the Secretary of the Company. The Notice shall state:
(i) that the Optionee elects to exercise the Option;
(ii) the number of shares with respect to which the Option is
being exercised (the "Optioned Shares").
(iii) the method of payment for the Optioned Shares;
<PAGE>
(iv) the date upon which the Optionee desires to consummate the
purchase, it being understood that the date so specified may not be more
than 15 calendar days subsequent to the delivery of Notice to the
Company;
(v) a copy of any election filed by the Optionee pursuant to
Section 83(b) of the Code; and
(vi) such further provisions consistent with the Plan as the
Board may from time to time require.
The exercise date of an Option shall be the later of (i) the date on
which the Company receives the Notice from the Optionee and (ii) the date on
which the Company receives the Notice from the Optionee.
(c) Issuance of Certificates. The Company shall issue a stock certificate
------------------------
in the name of the Optionee (or such other person exercising the Option in
accordance with the provisions of Section 10(b)) for the Optioned Shares as soon
-------------
as practicable after receipt of the Notice and payment of the aggregate Option
Price for such shares. Neither the Optionee nor any person exercising an Option
in accordance with the provisions of Section 10(b) shall have any privileges as
-------------
a stockholder of the Company with respect to any shares of stock subject to an
Option granted under the Plan until the date of the issuance of a stock
certificate pursuant to this Section 8(c).
------------
SECTION 9.
ADJUSTMENTS
(a) Changes in Capital Structure. Subject to Section 9(b), if the
---------------------------- ------------
Common Stock is changed by reason of a stock split, reverse stock split, stock
dividend or capitalization, or converted into or exchanged for other securities
as a result of a merger, consolidation or reorganization, the Board shall make
such adjustments in the number and class of shares of stock with respect to
which Options may be granted under the Plan as shall be equitable and
appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change. A corresponding
adjustment changing the number and class of shares allocated to, and the Option
Price of, each Option or portion thereof outstanding at the time of such change
shall likewise be made. Notwithstanding anything contained in the Plan to the
contrary, in the case of ISOs, no adjustment under this Section 9(a) shall be
------------
appropriate if such adjustment (i) would constitute a modification, extension or
renewal of such ISO within the meaning of Section 422 and 425 of the Code, and
the regulations promulgated by the Treasury Department thereunder, or (ii)
would, under Section 422 of the Code and the regulations promulgated by the
Treasury Department thereunder, be considered as the adoption of a new plan
requiring stockholder approval.
(b) Corporate Transactions. The following rules shall apply in connection
----------------------
with the dissolution or liquidation of the Company, a reorganization, merger or
consolidation in which the Company is not the surviving corporation, or a sale
of all or substantially all of the assets of the Company to another person or
entity (a "Corporate Transactions"):
<PAGE>
(i) each holder of an Option outstanding at such time shall be given (A)
written notice of such Corporate Transaction at least 20 days prior to its
proposed effective date (as specified in such notice) and (B) an opportunity,
during the period commencing on the delivery date of such notice and ending 10
days prior to the proposed effective date of such transaction, to exercise the
Option to the full extent to which such Option would have been exercisable by
the Optionee at the expiration of such 20 day period; provided, however, that
-------- -------
upon the occurrence of a Corporate Transaction, all Options granted under the
Plan and not so exercised shall automatically terminate; and
(ii) notwithstanding anything contained in the Plan to the contrary,
Section 9(b)(i) shall not be applicable if provision shall be made in connection
- ---------------
with such Corporate Transaction for the assumption of outstanding Options by, or
the substitution for such Options of new options covering the stock of, the
surviving successor or purchasing corporation or a parent or subsidiary
thereof, with appropriate adjustments as to the number, kind and option prices
of shares subject to such options; provided, however, that in the case of ISOs,
-------- -------
the Board shall, to the extent not inconsistent with the best interests of the
Company of its Subsidiaries (such best interests to be determined in good faith
by the Board in its sole discretion), use its best efforts to ensure that any
such assumption or substitution will not constitute a modification, extension or
renewal of the ISOs within the meaning of Section 425(h) of the Code and the
regulations promulgated by the Treasury Department thereunder.
(c) Special Rules. The following rules shall apply in connection with
------- -----
Section 9(a) and (b) above:
- ------------ ---
(i) no fractional shares shall be issued as a result of any such
adjustment, and any fractional shares resulting from the computations
pursuant to Section 9(a) or (b) shall be eliminated without consideration
------------ ---
from the respective Options;
(ii) no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional shares of
Common Stock or other securities; and
(iii) any adjustments referred to in Section 9(a) or (b) shall be
------------ ---
made by the Board in its sole discretion and shall be conclusive and
binding on all persons holding Options granted under the Plan.
SECTION 10.
RESTRICTIONS ON OPTIONS AND OPTIONED SHARES
(a) Compliance with Securities Laws. No Options shall be granted under
-------------------------------
the Plan, and no shares of Common Stock shall be issued and delivered upon the
exercise of Options granted under the Plan, unless and until the Company and/or
the Optionee shall have complied with all applicable federal or state
registration, listing and/or qualification requirements and all other
requirements of law or of any regulatory agencies having jurisdiction. The Board
in its discretion may, as a condition to the exercise of any Option granted
under the Plan, require an Optionee (i) to represent in writing that the shares
of Common Stock received upon the exercise of an Option are being acquired for
investment and not with a view to distribution and (ii) to make such other
representations and warranties as are deemed appropriate by the Company. Stock
certificates representing shares of Common Stock acquired upon the exercise of
Options
<PAGE>
that have not been registered under the Securities Act shall, if required by the
Board, bear the following legend and such additional legends as may be required
by the Option Agreement evidencing a particular Option:
"THE REGISTERED HOLDER HEREOF HAS REPRESENTED TO THE ISSUER OF THE SHARES
REPRESENTED THIS CERTIFICATE THAT HE HAS ACQUIRED SUCH SHARES FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION. ACCORDINGLY, SUCH SHARES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS SUBSEQUENTLY REGISTERED THEREUNDER OR AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE."
(b) Nonassignability of Option Rights. No Option granted under this Plan
---------------------------------
shall be assignable or otherwise transferable by the Optionee except by will or
by the laws of descent and distribution. An Option may be exercised during the
lifetime of the Optionee only by the Optionee. If an Optionee dies, his or her
Option shall thereafter be exercisable, during the period specified in Section
-------
7(b)(ii) or (iii) as applicable, by his or her executors or administrators to
- -------- -----
the full extent to which such Option was exercisable by the Optionee at the time
of his or her death.
SECTION 11.
EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date (the "Effective Date") of
--------------
its adoption by the Board; provided, however, that on Option shall be
-------- -------
exercisable by an Optionee unless and until the Plan shall have been approved by
the stockholders of the Company in accordance with the provisions of its
Certificate of Incorporation and By-laws, which approval shall be obtained by a
simple majority vote of stockholders, voting either in person or by proxy, at a
duly held stockholders' meeting, or by written consent, within 12 months before
or after the adoption of the Plan by the Board.
SECTION 12.
EXPIRATION AND TERMINATION OF THE PLAN
Except with respect to Options then outstanding, the Plan shall expire on
the first to occur of (i) the tenth anniversary of the date on which the Plan is
adopted by the Board, (ii) the tenth anniversary of the date on which the Plan
is approved by the stockholders of the Company and (iii) the date as of which
the Board, in its sole discretion, determined that the Plan shall terminate (the
"Expiration Date"). Any Options outstanding as of the Expiration Date shall
remain in effect until they have been exercised or terminated or have expired by
their respective terms.
<PAGE>
SECTION 13.
AMENDMENT OF PLAN
The Board may at any time prior to the Expiration Date modify and amend
the Plan in any respect; provided, however, that the approval of the holders of
a majority of the votes that may be cast by all of the holders of shares of
capital stock of the Company, if any, entitled to vote thereon shall be obtained
prior to any such amendment becoming effective if such approval is required by
law or is necessary to comply with regulations promulgated by the SEC under
Section 16(b) of the 1934 Act or with Section 422 of the Code or the regulations
promulgated by the Treasury Department thereunder.
SECTION 14.
CAPTIONS
The use of captions in this Plan is for convenience. The captions are not
intended to provide substantive rights.
SECTION 15.
DISQUALIFYING DISPOSITIONS
If Optioned Shares acquired by exercise of an ISO granted under this Plan
are disposed of within two years following tie date of grant of the ISO or one
year following the issuance of the Optioned Shares to the Optionee (a
"Disqualifying Disposition" ), the holder of the Optioned Shares shall,
immediately prior to such Disqualifying Disposition, notify the Company in
writing of the date and terms of such Disqualifying Disposition and provide such
other information regarding the Disqualifying Disposition as the Company may
reasonably require.
SECTION 16.
WITHHOLDING TAXES
Whenever under the Plan shares of Common Stock are to be delivered by an
Optionee upon exercise of an NSO, the Company shall be entitled to require as a
condition of delivery that the Optionee remit or, in appropriate cases, agree to
remit when due, an amount sufficient to satisfy all current or estimated future
federal, state and local withholding tax and employment tax requirements
relating thereto. At the time of a Disqualifying Disposition, the Optionee shall
remit to the Company in cash the amount of any applicable federal, state and
local withholding taxes and employment taxes.
SECTION 17.
OTHER PROVISIONS
Each Option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion. Notwithstanding the foregoing, each ISO granted under the
Plan shall include those terms and conditions which are necessary to qualify the
ISO as an "incentive stock option" within the
<PAGE>
meaning of Section 422 of the Code and the regulations thereunder and shall not
include any terms or conditions which are inconsistent therewith.
SECTION 18.
NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, and
vice-versa, as the context requires.
SECTION 19.
GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Options granted hereunder shall be governed by the laws of the State of
Delaware.
As adopted by the Board of Directors of Coaxicom, Inc. as of January 31, 1997
<PAGE>
Exhibit 10.34
BROADVIEW NETWORKS HOLDINGS, INC.
(a Delaware corporation)
------------------------
2000 LONG-TERM INCENTIVE PLAN
------------------------
SECTION 1.
PURPOSE OF THE PLAN
(a) Purpose. The purpose of the Broadview Networks Holdings, Inc. 2000
-------
Long-Term Incentive Plan (the "Plan") is to (i) further the growth and success
of Broadview Networks Holdings, Inc. (the "Company") and any entity in which the
Company holds a controlling interest (its "Subsidiaries") by enabling directors
and employees of, and independent consultants and contractors to, the Company
and any of its Subsidiaries to acquire shares of the common stock, $.01 par
value per share (the "Common Stock"), of the Company, thereby increasing their
personal interest in such growth and success, and (ii) provide a means of
rewarding outstanding performance by such persons to the Company and/or its
Subsidiaries. For purposes of the Plan, the terms "Parent" and "Subsidiary"
mean "Parent Corporation" and "Subsidiary Corporation," respectively, as such
terms are defined in Sections 424(e) and (f) of the Internal Revenue Code of
1986 (the "Code").
(b) Participation. Subject to the terms and conditions of the Plan, the
-------------
Committee (as defined in Section 2) shall determine and designate from time to
---------
time, from among the "Eligible Individuals" those persons who will be granted
one or more Awards under the Plan and thereby become "Participants" in the Plan.
For purposes of the Plan, the term "Eligible Individual" shall mean any employee
or director (including directors who are not employees of the Company or a
Subsidiary (a "Non-Employee Director")) of the Company or a Subsidiary, and any
consultant or other person providing services to the Company or a Subsidiary.
(c) Effective Date. Subject to the approval of the shareholders of the
--------------
Company at the Company's 2000 annual meeting of its shareholders, the Plan shall
be effective as of February 3, 2000 (the "Effective Date"); provided, however,
that to the extent that Awards are granted under the Plan prior to its approval
by shareholders, the Awards shall be contingent on the approval of the Plan by
the shareholders of the Company at such annual meeting. The Plan shall be of
unlimited duration and, in the event of Plan termination shall remain in effect
as long as any Awards under it are outstanding; provided, however, that no
Awards may be granted under the Plan after the tenth anniversary of the
Effective Date (except for Awards granted pursuant to commitments entered into
prior to such ten-year anniversary).
<PAGE>
SECTION 2.
ADMINISTRATION
(a) Administration. So long as the Company is subject to Section 16 of the
--------------
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Plan shall
be administered by a committee (the "Committee") selected by the Board and shall
consist of not fewer than two members of the Board or such greater number as may
be required for compliance with Rule 16b-3 issued under the Exchange Act, none
of whom shall be eligible to receive Awards under the Plan except as provided in
subsection 4(c).
(b) Powers of Committee. The authority to manage and control the operation
-------------------
and administration of the Plan shall be vested in the Committee, subject to the
following:
(i) Subject to the provisions of the Plan, the Committee will
have the authority and discretion to select which Eligible Individuals
will receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of Shares covered by the
Awards, to establish the terms, conditions, performance criteria,
restrictions, and other provisions of such Awards, and to cancel or
suspend Awards.
(ii) Subject to the provisions of the Plan, the Committee will
have the authority and discretion to determine the extent to which
Awards under the Plan will be structured to conform to the
requirements applicable to "Performance-Based Compensation" (as that
term is used in Section 162(m)(4)(C) of the Code), and to take such
action, establish such procedures, and impose such restrictions at the
time such Awards are granted as the Committee determines to be
necessary or appropriate to conform to such requirements.
(iii) The Committee will have the authority and discretion to
interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, to determine the terms and
provisions of any agreements made pursuant to the Plan and to make all
other determinations that may be necessary or advisable for the
administration of the Plan.
(iv) Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding on all
persons.
(c) Delegation by Committee. Except to the extent prohibited by
-----------------------
applicable law or the rules of any stock exchange or NASDAQ (if appropriate),
the Committee may allocate all or any portion of its responsibilities and
powers to any one or more of its members and may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any time.
2
<PAGE>
(d) Information to be Furnished to Committee. The Company and
----------------------------------------
Subsidiaries shall furnish the Committee such data and information as it
determines may be required for it to discharge its duties. The records of the
Company and Subsidiaries as to an employee's or Participant's employment (or
other provision of services), termination of employment (or cessation of the
provision of services), leave of absence, reemployment and compensation shall be
conclusive on all persons unless determined to be incorrect. Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee consider desirable to carry
out the terms of the Plan.
(e) Liability and Indemnification of Committee. No member or
------------------------------------------
authorized delegate of the Committee shall be liable to any person for any
action taken or omitted in connection with the administration of the Plan unless
attributable to his own fraud or willful misconduct; nor shall the Company or
any Subsidiary be liable to any person for any such action unless attributable
to fraud or willful misconduct on the part of an employee of the Company of any
Subsidiary. The Committee, the individual members thereof, and persons acting
as the authorized delegates of the Committee under the Plan, shall be
indemnified by the Company against any and all liabilities, losses, costs and
expenses (including legal fees and expenses) of whatsoever kind and nature which
may be imposed on, incurred by or asserted against the Committee or its members
or authorized delegates by reason of the performance of a Committee function if
the Committee or its members or authorized delegates did not act dishonestly or
in willful violation of the law or regulation under which such liability, loss,
cost or expense arises. This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance.
SECTION 3.
SHARES OF STOCK SUBJECT TO THE PLAN
(a) Character of Shares. The shares of Common Stock with respect to
-------------------
which Awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions.
(b) Number of Shares. Subject to the following provisions of this
----------------
Section 3, the maximum number of shares of Common Stock that may be delivered to
Participants and their beneficiaries under the Plan shall be equal to the sum
of: (i) 5,200,000 shares of Common Stock; and (ii) any shares of Common Stock
that are represented by Awards granted under the Plan which are forfeited,
expire or are canceled without delivery of shares of Common Stock or which
result in the forfeiture of the shares of Common Stock back to the Company.
(x) To the extent any shares of Common Stock covered by an Award
are not delivered to a Participant or beneficiary because the Award is
forfeited or canceled, or the shares of Common Stock are not delivered
because the Award is settled in cash or used to satisfy the applicable
tax withholding obligation, such
3
<PAGE>
shares shall not be deemed to have been delivered for purposes of
determining the maximum number of shares of Common Stock available for
delivery under the Plan.
(y) If the Price of any Option granted under the Plan is
satisfied by tendering shares of Common Stock to the Company (by
either actual delivery or by attestation), only the number of shares
of Common Stock issued net of the shares of Common Stock tendered
shall be deemed delivered for purposes of determining the maximum
number of shares of Stock available for delivery under the Plan.
(c) Limitations. The following additional maximums are imposed under the
-----------
Plan.
(i) The maximum number of shares of Common Stock that may be
issued by Options intended to be ISOs (as defined in Section 4) shall
---------
be 5,200,000 shares.
(ii) The maximum number of shares that may be covered by Awards
granted to any one individual pursuant to Section 4 or 5 (relating to
--------- -
Options and SARs) shall be 1,500,000 shares during any one calendar-
year period. If an Option is in tandem with an SAR, such that the
exercise of the Option or SAR with respect to a share of Common Stock
cancels the tandem SAR or Option right, respectively, with respect to
such share, the tandem Option and SAR rights with respect to each
share of Common Stock shall be counted as covering but one share of
Common Stock for purposes of applying the limitations of this
paragraph (ii).
(iii) The maximum number of shares of Common Stock that may be
issued in conjunction with Awards granted pursuant to Section 6
---------
(relating to Share Awards) shall be 1,000,000 shares.
(iv) For Restricted Share Awards that are intended to be
"performance-based compensation" (as that term is used for purposes of
Code section 162(m)), no more than 1,000,000 shares of Common Stock
may be subject to such Awards granted to any one individual during any
one-calendar-year period. If, after shares have been earned, the
delivery is deferred, any additional shares attributable to dividends
during the deferral period shall be disregarded.
SECTION 4.
OPTIONS
(a) General. Options granted under the Plan may be either "incentive stock
-------
options" ("ISOs"), intended to qualify as such under the provisions of Section
422 of the Code, or non-qualified stock options ("NSOs"). Options granted to
employees of the Company or any of its Subsidiaries shall be, in the discretion
of the Committee, either ISOs or NSOs, and Options granted to independent
consultants or directors of the Company or any of its Subsidiaries shall in all
events
4
<PAGE>
be NSOs. Unless the context otherwise requires, any ISO or NSO shall hereinafter
be referred to as an "Option". Notwithstanding anything contained in this
subsection (a) to the contrary, no ISO may be granted under the Plan to an
employee who owns, directly or indirectly (within the meaning of Sections
422(b)(6) and 424(d) of the Code), stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its Parent,
if any, or any of its Subsidiaries, unless (A) the Option Price (as defined in
subsection (d) below) for the shares of Common Stock subject to such ISO is
fixed at not less than 110% of the Fair Market Value of such shares on the date
of grant and (B) such ISO by its terms is not exercisable after the expiration
of five years from the date it is granted.
(b) Eligibility. The Committee shall designate the Participants to whom
-----------
Options are to be granted under this Section and shall determine the number of
shares subject to each such Option; provided, however, that the entire Board
-------- -------
shall make such determinations with respect to Non-Employee Directors. If the
Committee grants ISOs, to the extent required by Section 422 of the Code, the
ISO shall not be considered an ISO to the extent that the aggregate Fair Market
Value on the date of grant of such ISO of all stock with respect to which ISOs
are exercisable for the first time by such Optionee during any calendar year
(under all plans of the Company and its Subsidiaries) exceeds $100,000.
(c) Price. The determination and payment of the purchase price of a share
-----
under each Option granted under this Section shall be subject to the following:
(i) The price (the "Option Price") at which each share of
Common Stock subject to an Option granted under the Plan may be
purchased shall be determined by the Committee at the time the Option
is granted; provided, however, that in the case of an ISO, such Option
-------- -------
Price shall in no event be less than 100% of the Fair Market Value of
such share of Common Stock on the date of grant.
(ii) Subject to the following provisions of this subsection,
the full purchase price of each share purchased upon the exercise of
any Option shall be paid at the time of such exercise (or such later
date as may be permitted by the Committee in the case of a cashless
exercise) and, as soon as practicable thereafter, a certificate
representing the shares so purchased shall be delivered to the person
entitled thereto.
(iii) The purchase price shall be payable in cash or by
tendering shares by actual delivery or attestation (valued at Fair
Market Value as of the day of exercise) that have been held by the
Participant at least six months, or in any combination thereof, as
determined by the Committee.
(iv) Subject to the requirement of Section 422 of the Code, for
purposes of the Plan, the "Fair Market Value" of shares of the Common
Stock shall be equal to:
5
<PAGE>
(A) if such shares are publicly traded, (x) the closing
price, if applicable, or the average of the last bid and asked
prices on the date of grant or, if lower, the average of the
daily closing prices (or the means between the last bid and asked
prices for days on which no sales took place) of the 30 business
days immediately preceding the date of grant, in the over-the-
counter market as reported by NASDAQ or (y) if the Common Stock
is then traded on a national securities exchange, the average of
the high and low prices on the date of grant or, if lower, the
average of the daily closing prices (or the means between the
last bid and asked prices for days on which no sales took place)
of the 30 business days immediately preceding the date of grant,
on the principal national securities exchange on which such
security is so traded; or
(B) if there is no public trading market for such shares,
the fair market value of such shares on the date of grant as
determined by the Committee, without regard in respect to any
such determination for any discount, including, without
limitation, for the fact that such share is held by a minority
stockholder, that there is no public market for the stock or, if
there were a public market for such stock, such stock would be
"restricted" as defined under Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), after
taking into consideration all other factors which it deems
appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at
arms' length. Notwithstanding anything contained in the Plan to
the contrary, all determinations pursuant to this paragraph shall
be made without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(C) For purposes of determining the Fair Market Value of
shares that are sold pursuant to a cashless exercise program,
Fair Market Value shall be the price at which such shares are
sold.
(d) Exercise. Except as otherwise expressly provided in the Plan, an
--------
Option granted under subsection (b) above shall be exercisable in accordance
with the following terms of this subsection:
(i) Each such Option granted under the Plan shall be
exercisable at such time or times, or upon the occurrence of such
event or events, and for such number of shares subject to the Option,
as shall be determined by the Committee and set forth in the Option
Agreement evidencing such Option. Subject to the proviso of the
immediately preceding sentence, if an Option is not at the time of
grant immediately exercisable, the Committee may (A) in the Option
Agreement evidencing such Option, provide for the acceleration of the
exercise date or dates of the subject Option
6
<PAGE>
upon the occurrence of specified events and/or (B) at any time prior
to the complete termination of an Option, accelerate the exercise date
or dates of such Option.
(ii) No Option may be exercised by a Participant after the
Expiration Date (as defined in subsection (g) below) applicable to
that Option.
(iii) If Optioned Shares acquired by exercise of an ISO granted
under this Plan are disposed of within two years following the date of
grant of the ISO or one year following the issuance of the Optioned
Shares to the Optionee (a "Disqualifying Disposition"), the holder of
the Optioned Shares shall, immediately prior to such Disqualifying
Disposition, notify the Company in writing of the date and terms of
such Disqualifying Disposition and provide such other information
regarding the Disqualifying Disposition as the Company may reasonably
require.
(e) Post-Exercise Limitations. The Committee, in its discretion, may
-------------------------
impose such restrictions on shares acquired pursuant to the exercise of an
Option as it determines to be desirable, including, without limitation,
restrictions relating to disposition of the shares and forfeiture restrictions
based on service, performance, share ownership by the Participant and such other
factors as the Committee determines to be appropriate.
(f) Expiration Date. The "Expiration Date" with respect to an Option
---------------
granted pursuant to subsection (b) above means the date established as the
Expiration Date by the Committee at the time of the grant; provided, however,
-----------------
that unless determined otherwise by the Committee, the Expiration Date with
respect to any Option shall not be later than the earliest to occur of:
(i) the tenth anniversary of the date on which such Option is
granted or, in the case of any ISO granted to a person described in
subsection (a) above, the fifth anniversary of the date on which such
ISO is granted;
(ii) the expiration of three months from the date that the
Optionee ceased to be an employee of the Company or any of its
Subsidiaries (other than as a result of death, permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) or
Termination for Cause (as defined below)); provided, however, that if
the Optionee shall die during such three-month period, the time of
termination of the unexercised portion of such Option shall be the
expiration of six months from the date that such Optionee ceased to be
an employee or director of, or independent consultant or contractor
to, the Company or any of its Subsidiaries;
(iii) the expiration of six months from the date that the
Optionee ceased to be an employee of the Company or any of its
Subsidiaries, if such termination is due to such Optionee's death or
permanent and total disability;
7
<PAGE>
(iv) except to the extent permitted by subsection 8(e), the
date on which an Option or any part thereof or right or privilege
relating thereto is transferred (otherwise than by will or the laws of
descent and distribution), assigned, pledged, hypothecated, attached
or otherwise disposed of by the Optionee; and
(v) if the Optionee is an employee of the Company, upon
Termination for Cause.
The Committee shall have the power to determine what constitutes a
Termination For Cause for purposes of the Plan and the date upon which
such Termination For Cause shall occur. All such determinations shall
be final and conclusive and binding upon the Optionee. Anything
contained in the Plan to the contrary notwithstanding, unless
otherwise provided in an Option Agreement, no Option granted under the
Plan shall be affected by any change of duties or position of the
Optionee (including a transfer to or from the Company or one of its
Subsidiaries), so long as such Optionee continues to be an employee or
director of, or independent consultant or contractor to, the Company
or one of its Subsidiaries.
SECTION 5.
STOCK APPRECIATION RIGHTS
(a) Definition. Subject to the terms of this Section 5, a "Stock
----------
Appreciation Right" ("SAR") granted under the Plan entitles the Participant to
receive, in cash or Common Stock (as determined in accordance with subsection
(d)), value equal to all or a portion of the excess of: (i) the Fair Market
Value of a specified number of shares of Common Stock at the time of exercise;
over (ii) a specified price which shall not be less than 100% of the Fair Market
Value of the Common Stock at the time the SAR is granted, or, if granted in
tandem with an Option, the exercise price with respect to shares under the
tandem Option.
(b) Eligibility. Subject to the provisions of the Plan, the Committee
-----------
shall designate the Participants to whom SARs are to be granted under the Plan,
shall determine the exercise price or a method by which the price shall be
established with respect to each such SAR, and shall determine the number of
shares of Common Stock on which each SAR is based. A SAR may be granted in
connection with all or any portion of a previously or contemporaneously granted
Option or not in connection with an Option. If a SAR is granted in connection
with an Option then, in the discretion of the Committee, the SAR may, but need
not, be granted in tandem with the Option.
(c) Exercise. The exercise of SARs shall be subject to the following:
--------
(i) If a SAR is not in tandem with an Option, then the SAR
shall be exercisable in accordance with the terms established by
the Committee in connection with such rights, and may include,
without limitation, conditions relating to
8
<PAGE>
completion of a specified period of service, achievement of
performance standards prior to exercise of the SARs, or
achievement of objectives relating to Common Stock ownership by
the Participant. However, except as otherwise expressly provided
in the Plan, no SAR subject to this Section may be exercised by a
Participant after the Expiration Date applicable to that SAR.
(ii) If a SAR is in tandem with an Option, then the SAR
shall be exercisable at the time the tandem Option is exercisable.
The exercise of a SAR will result in the surrender of the
corresponding rights under the tandem Option.
(d) Settlement of Award. Upon the exercise of a SAR, the value to be
-------------------
distributed to the Participant, in accordance with subsection (a) above, shall
be distributed in shares of Common Stock (valued at their Fair Market Value at
the time of exercise), in cash or in a combination thereof, in the discretion of
the Committee.
(e) Post-Exercise Limitations. The Committee, in its discretion, may
-------------------------
impose such restrictions on shares of Common Stock acquired pursuant to the
exercise of a SAR as it determines to be desirable, including, without
limitation, restrictions relating to disposition of the shares and forfeiture
restrictions based on service, performance, ownership of Common Stock by the
Participant, and such other factors as the Committee determines to be
appropriate.
(f) Expiration Date. If a SAR is in tandem with an Option, then the
---------------
"Expiration Date" for the SAR shall be the Expiration Date for the related
Option. If a SAR is not in tandem with an Option, then the "Expiration Date"
for the SAR shall be the date established as the Expiration Date by the
Committee; provided, however, that subject to the following provisions of this
subsection (f), the Expiration Date with respect to any SAR shall not be later
than the earliest to occur of:
(i) the ten-year anniversary of the date on which the SAR
is granted;
(ii) if the Participant's date of Termination occurs by
reason of death or permanent and total disability, the six-month
anniversary of such date of Termination;
(iii) if the Participant's date of Termination occurs by
reason other than death, permanent and total disability or
Termination for Cause, the three-month anniversary of such date of
Termination; and
(iv) If the Participant's date of Termination occurs for
reasons of Cause, such date of Termination.
9
<PAGE>
SECTION 6.
SHARE AWARDS
(a) Definition. Subject to the terms of this Section, a Share Award
----------
under the Plan is a grant of shares to a Participant, the earning, vesting or
distribution of which is subject to one or more conditions established by the
Committee. Such conditions may relate to events (such as performance or
continued employment) occurring before or after the date the Share Award is
granted, or the date the shares are earned by, vested in or delivered to the
Participant. If the vesting of Share Awards is subject to conditions occurring
after the date of grant, the period beginning on the date of grant of a Share
Award and ending on the vesting or forfeiture of such shares (as applicable) is
referred to as the "Restricted Period". Share Awards may provide for delivery
of the shares of Shares at the time of grant or may provide for a deferred
delivery date. A Share Award may, but need not, be made in conjunction with a
cash-based incentive compensation program maintained by the Company and may, but
need not, be in lieu of cash otherwise awardable under such program.
(b) Eligibility. The Company shall designate the Participants to whom
-----------
Share Awards are to be granted and the number of shares that are subject to each
such Award.
(c) Terms and Conditions of Awards. Share Awards granted to
------------------------------
Participants under the Plan shall be subject to the following terms and
conditions:
(i) Beginning on the date of grant (or, if later, the date of
distribution) of shares comprising a Share Award, and including any
applicable Restricted Period, the Participant as owner of such shares
shall have the right to vote such shares.
(ii) Payment of dividends with respect to Share Awards shall be
subject to the following:
(A) On and after the date that a Participant has a fully
earned and vested right to the shares comprising a Share Award
and the shares have been distributed to the Participant, the
Participant shall have all dividend rights (and other rights) of
a shareholder with respect to such shares.
(B) Prior to the date that a Participant has a fully earned
and vested right to the shares comprising a Share Award, the
Committee, in its sole discretion, may award Dividend Rights with
respect to such shares.
(C) On and after the date that a Participant has a fully
earned and vested right to the shares comprising a Share Award,
but before the shares have been distributed to the Participant,
the Participant shall be entitled to Dividend Rights with respect
to such shares, at the time and in the form determined by the
Committee.
10
<PAGE>
(D) A "Dividend Right" with respect to shares comprising a
Share Award shall entitle the Participant, as of each dividend
payment date, to an amount equal to the dividends payable with
respect to a share multiplied by the number of such shares.
Dividend Rights shall be settled in cash or in shares valued at
Fair Market Value as of the date of settlement, as determined by
the Committee, shall be payable at the time determined by the
Committee and shall be subject to such other terms and conditions
as the Committee may determine.
SECTION 7.
ADJUSTMENTS
(a) Changes in Capital Structure. Subject to subsection (b) below, if the
----------------------------
Common Stock is changed by reason of a stock split, reverse stock split, stock
dividend or capitalization, or converted into or exchanged for other securities
as a result of a merger, consolidation or reorganization, the Committee shall
make such adjustments in the number and class of shares of stock with respect to
which Awards may be granted under the Plan as shall be equitable and appropriate
in order to make such Awards, as nearly as may be practicable, equivalent to
such Awards immediately prior to such change. A corresponding adjustment
changing the number and class of shares allocated to Options and SARs, and the
Option Price of each Option or portion thereof outstanding at the time of such
change shall likewise be made. Notwithstanding anything contained in the Plan
to the contrary, in the case of ISOs, no adjustment under this subsection (a)
shall be appropriate if such adjustment (i) would constitute a modification,
extension or renewal of such ISO within the meaning of Section 422 and 424 of
the Code, and the regulations promulgated by the Treasury Department thereunder,
or (ii) would, under Section 422 of the Code and the regulations promulgated by
the Treasury Department thereunder, be considered as the adoption of a new plan
requiring stockholder approval.
(b) Corporate Transactions. The following rules shall apply in connection
----------------------
with the dissolution or liquidation of the Company, a reorganization, merger or
consolidation in which the Company is not the surviving corporation, or a sale
of all or substantially all of the assets of the Company to another person or
entity (a "Corporate Transaction"):
(i) each holder of an Option or a SAR outstanding at such time
shall be given (A) written notice of such Corporate Transaction at
least 20 days prior to its proposed effective date (as specified in
such notice) and (B) an opportunity, during the period commencing on
the delivery date of such notice and ending 10 days prior to the
proposed effective date of such transaction, to exercise the Option or
SAR to the full extent to which such Option or SAR would have been
exercisable by the Optionee at the expiration of such 20-day period;
provided, however, that upon the occurrence of a Corporate Transaction
-------- -------
for which shareholders of the Company receive cash, all Awards granted
under the Plan shall become nonforfeitable; and
11
<PAGE>
provided, further, all Options and SARs granted under the Plan and not
-----------------
so exercised shall automatically terminate; and
(ii) notwithstanding anything contained in the Plan to the
contrary, paragraph (i) shall not be applicable if provision shall be
made in connection with such Corporate Transaction for the assumption
of outstanding Options and SARs by, or the substitution for such
Options and SARs of new options and SARs covering the stock of, the
surviving successor or purchasing corporation or a parent or
subsidiary thereof, with appropriate adjustments as to the number,
kind and option prices of shares subject to such Options and SARs;
provided, however, that in the case of ISOs, the Board shall, to the
-------- -------
extent not inconsistent with the best interests of the Company or its
Subsidiaries (such best interests to be determined in good faith by
the Board in its sole discretion), use its best efforts to ensure that
any such assumption or substitution will not constitute a
modification, extension or renewal of the ISOs within the meaning of
Section 424(h) of the Code and the regulations promulgated by the
Treasury Department thereunder.
(c) Special Rules. The following rules shall apply in connection with
-------------
subsection (a) and (b) above:
(i) no fractional shares shall be issued as a result of any
such adjustment, and any fractional shares resulting from the
computations pursuant to subsection (a) or (b) shall be eliminated
without consideration from the respective Options;
(ii) no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional shares
of Common Stock or other securities; and
(iii) any adjustments referred to in subsection (a) or (b) shall
be made by the Committee in its sole discretion and shall be
conclusive and binding on all persons holding Options granted under
the Plan.
SECTION 8.
OPERATION
(a) Limit on Distribution. Distribution of shares or other amounts under
---------------------
the Plan shall be subject to the following:
(i) Notwithstanding any other provision of the Plan, the Company
shall have no liability to deliver any shares under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
12
<PAGE>
(ii) In the case of a Participant who is subject to Section 16(a) and
16(b) of the Exchange Act, the Committee may, at any time, add such
conditions and limitations to any Award to such Participant, or any feature
of any such Award, as the Committee, in its sole discretion, deems
necessary or desirable to comply with Section 16(a) or 16(b) and the rules
and regulations thereunder or to obtain any exemption therefrom.
(iii) To the extent that the Plan provides for issuance of
certificates to reflect the transfer of shares, the transfer of such shares
may be effected on a non-certificated basis, to the extent not prohibited
by applicable law or the rules of any stock exchange.
(b) Performance-Based Compensation. To the extent that the Committee
------------------------------
determines that it is necessary or desirable to conform any Awards under the
Plan with the requirements applicable to "Performance-Based Compensation", it
may, at or prior to the time an Award is granted, take such steps and impose
such restrictions with respect to such Award as it determines to be necessary to
satisfy such requirements including, without limitation:
(i) The establishment of performance goals that must be satisfied
prior to the payment or distribution of benefits under such Awards.
(ii) The submission of such Awards and performance goals to the
Company's shareholders for approval and making the receipt of benefits
under such Awards contingent on receipt of such approval.
(iii) Providing that no payment or distribution be made under such
Awards unless the Committee certifies that the goals and the applicable
terms of the Plan and Agreement reflecting the Awards have been satisfied.
To the extent that the Committee determines that the foregoing requirements
relating to Performance-Based Compensation do not apply to Awards under the
Plan because the Awards constitute Options or SARs, the Committee may, at
the time the Award is granted, conform the Awards to alternative methods of
satisfying the requirements applicable to Performance-Based Compensation.
(c) Withholding. All Awards and other payments under the Plan are subject
-----------
to withholding of all applicable taxes, which withholding obligations may be
satisfied, with the consent of the Committee, through the surrender of shares
which the Participant already owns or to which a Participant is otherwise
entitled under the Plan; provided, however, previously-owned shares that have
been held by the Participant less than six months or shares to which the
Participant is entitled under the Plan may only be used to satisfy the minimum
tax withholding required by applicable law.
(d) Transferability. Awards under the Plan are not transferable except as
---------------
designated by the Participant by will or by the laws of descent and distribution
or, to the extent provided by the Committee, pursuant to a qualified domestic
relations order (within the meaning of the Code and
13
<PAGE>
applicable rules thereunder). To the extent that the Participant who receives an
Award under the Plan has the right to exercise such Award, the Award may be
exercised during the lifetime of the Participant only by the Participant.
Notwithstanding the foregoing provisions of this subsection, the Committee may
permit Awards under the Plan to be transferred to or for the benefit of the
Participant's family (including, without limitation, to a trust or partnership
for the benefit of a Participant's family), subject to such procedures as the
Committee may establish. In no event shall an ISO be transferable to the extent
that such transferability would violate the requirements applicable to such
Option under Code section 422.
(e) Notices. Any notice or document required to be filed with the
-------
Committee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Committee, in care of the Company or
the Subsidiary, as applicable, at its principal executive offices. The
Committee may, by advance written notice to affected persons, revise such notice
procedure from time to time. Any notice required under the Plan (other than a
notice of election) may be waived by the person entitled to notice.
(f) Form and Time of Elections. Unless otherwise specified herein, each
--------------------------
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
(g) Agreement With Company. At the time of an Award to a Participant under
----------------------
the Plan, the Committee may require a Participant to enter into an agreement
with the Company (the "Agreement"), in a form specified by the Committee,
agreeing to the terms and conditions of the Plan and to such additional terms
and conditions, not inconsistent with the Plan, as the Committee may, in its
sole discretion, prescribe.
(h) Limitation of Implied Rights.
----------------------------
(i) Neither a Participant nor any other person shall, by reason of
the Plan, acquire any right in or title to any assets, funds or property of
the Company or any Subsidiary whatsoever, including, without limitation,
any specific funds, assets, or other property which the Company, in its
sole discretion, may set aside in anticipation of a liability under the
Plan. A Participant shall have only a contractual right to the amounts, if
any, payable under the Plan, unsecured by any assets of the Company and any
Subsidiary. Nothing contained in the Plan shall constitute a guarantee by
the Company or any Subsidiary that the assets of such companies shall be
sufficient to pay any benefits to any person.
14
<PAGE>
(ii) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any employee or advisor the right
to be retained in the employ or service of the Company or any Subsidiary,
nor any right or claim to any benefit under the Plan, unless such right or
claim has specifically accrued under the terms of the Plan. Except as
otherwise provided in the Plan, no Award under the Plan shall confer upon
the holder thereof any right as a shareholder of the Company prior to the
date on which he fulfills all service requirements and other conditions for
receipt of such rights and shares are registered in his name.
(i) Evidence. Evidence required of anyone under the Plan may be by
--------
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
(j) Action by Company or Subsidiary. Any action required or permitted to
-------------------------------
be taken by the Company or any Subsidiary shall be by resolution of its board of
directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board or (except
to the extent prohibited by applicable law or the rules of any stock exchange)
by a duly authorized officer of the Company.
(k) Gender and Number. Where the context admits, words in any gender shall
-----------------
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.
(l) Applicable Law. The provisions of the Plan shall be construed in
--------------
accordance with the laws of the State of Delaware, without giving effect to
choice of law principles.
SECTION 9.
AMENDMENT OF PLAN
The Board may at any time prior modify and amend the Plan in any respect;
provided, however, that the approval of the holders of a majority of the votes
that may be cast by all of the holders of shares of capital stock of the
Company, if any, entitled to vote thereon shall be obtained prior to any such
amendment becoming effective if such approval is required by law or is necessary
to comply with regulations promulgated by the SEC under Section 16(b) of the
Securities Act or with Section 422 of the Code or the regulations promulgated by
the Treasury Department thereunder.
As adopted by the Board of Directors of Broadview Networks Holdings, Inc. as of
February 3, 2000.
15
<PAGE>
Exhibit 10.36
OFFICE BUILDING LEASE AGREEMENT
744 BROAD STREET, NEWARK, NEW JERSEY
LANDLORD: 744 ELROY INVESTORS LLC
TENANT: BROADVIEW NETWORKS HOLDINGS, INC.
DATED: AS MARCH 15, 2000
<PAGE>
TABLE OF CONTENTS
Article Description
- ------- -----------
1. Definitions and Basic Provisions
2. Lease Grant
3. Rent
4. Increases in Base Rent
5. Landlord's Obligations
6. Intentionally Deleted
7. Permitted Use
8. Tenant's Repairs and Alterations
9. Subletting and Assigning
10. Indemnity
11. Subordination and Mortgagee's Right to Cure Landlord's Defaults
12. Rules and Regulations
13. Inspection
14. Condemnation
15. Casualty
16. Holding Over
17. Taxes on Tenant's Property
18. Events of Default
19. Remedies
20. Attorneys' Fees
21. Security Interest
22. Liens
23. Waiver of Subrogation
- i -
<PAGE>
24. Tenant's Insurance
25. Brokerage
26. Building Name
27. Estoppel Certificates
28. Notices
29. Force Majeure
30. Severability
31. Amendments; Binding Effect
32. Quiet Enjoyment
33. Gender
34. Joint and Several Liability
35. Captions
36. Exhibits and Attachments
37. No Joint Venture
38. Time of the Essence
39. Evidence of Authority
40. Governing Law
41. Entire Agreement
42. Exculpation
43. Covenants are Independent
44. Right to Relocate.
45. Hazardous Materials
46. Effect of Conveyance
47. Easements
48. Waiver of Right of Redemption
- ii -
<PAGE>
49. Waiver of Trial by Jury
50. Interpretation
51. No Recordation of Lease
52. Electric Current
53. Intentionally Deleted
54. Tenant's Work
55. Cleaning
56. Guaranty
57. Landlord's Managing Agent
58. Cancellation
59. Option to Renew
60. Right of First Refusal
61. Arbitration
62. Generator
63. Satellite Dish
64. Letter of Credit
65. Other Definitions
EXHIBIT "A" ................................................ Outline of Premises
EXHIBIT "B" ......................................... Memorandum Confirming Term
EXHIBIT "C" .............................................. Rules and Regulations
EXHIBIT "D" ................................................. Special Provisions
EXHIBIT "E" ........................................ Work Letter [If applicable]
EXHIBIT "F" ........................................................... Guaranty
EXHIBIT "G" ............................................ Cleaning Specifications
- iii -
<PAGE>
OFFICE BUILDING LEASE AGREEMENT
744 BROAD STREET, NEWARK, NEW JERSEY
This Office Building Lease Agreement (the "Lease") is entered into as of
the 15th day of March, 2000 by and between 744 ELROY INVESTORS LLC ("Landlord"
or "Owner"), c/o CRG MANAGEMENT, LLC, 1330 Avenue of the Americas, 25th Floor,
New York, New York 10019 and BROADVIEW NETWORKS HOLDINGS, INC., a corporation,
with offices at 45-18 Court Square, Long Island City, New York 11101 ("Tenant").
WITNESSETH:
1. Definitions and Basic Provisions. Certain definitions and provisions
(the "Basic Lease Information") of this Lease are:
1.1 Lease Date: March 1,2000
1.2 Tenant: BROADVIEW NETWORKS HOLDINGS, INC.
1.3 Tenants Address: 744 Broad Street, Suite 10th Floor
Newark, New Jersey 07102
Contact:
Telephone:
1.4 Landlord: 744 Elroy Investors LLC
1.5 Landlord's Address: c/o CRC Management, LLC
1330 Avenue of the Americas
25th Floor
New York, New York 10019
Attn.: Arthur R. Stern
1.6 Premises: A portion of the tenth (10th) floor ("Premises" or
"Demised Premises") in the office building located at 744 Broad Street, Newark,
New Jersey 07102 (the "Building"), known as "744 Broad Street". Premises #1 and
Premises #2, both as defined hereinafter, are referred to collectively as the
"Premises" or the "Demised Premises". The Building and the land upon which it is
situated are herein sometimes collectively called the "Project". No vaults,
vault space or area, whether or not enclosed or covered, not within the property
line of the Building is leased hereunder, notwithstanding anything to the
contrary contained in or indicated on any sketch, blueprint or plan, or anything
contained elsewhere in this Lease. Landlord makes no representation as to the
location of the property line of the Building.
1.7 Lease Term: The term of the Lease for Premises #1 (as
hereinafter defined) shall commence upon vacant delivery of possession of the
Premises #1 and the date landlord has substantially completed that portion of
Landlord's Work [as hereinafter defined] described in sections [ii] and [iii] of
Exhibit "E", subject to adjustment provided in the Lease (the "Commencement Date
#1"), and shall expire on the Lease Expiration Date (as hereinafter defined). If
Commencement Date #1 is a date other than the first day of a month, the Lease
Term shall consist of said number of months in addition to the remainder of the
month in which Commencement Date #1 occurs. The term of the Lease for Premises
#2 (as hereinafter defined) shall commence on the date of substantial completion
of Landlord's work for Premises #2 as set forth in Exhibit "E" (the
"Commencement Date #2"), and shall expire, coterminously with "the term for
Premises #1, on the last day of the one hundred twenty-seventh (127th)
consecutive month thereafter (the "Lease Expiration Date"). If Commencement Date
#2 is a date other than the first day of a month, the Lease Term shall consist
of said number of months in addition to the remainder of the month in which
Commencement Date #2 occurs. When Landlord is of the opinion that the Landlord's
Work and/or Tenant Improvements (as defined in Exhibit E hereinafter) for
Premises #2 is Substantially Complete (as defined in Exhibit E hereinafter)
Landlord shall then notify
<PAGE>
Tenant, subject to the terms and provisions of Exhibit "E". Anything contained
herein to the contrary notwithstanding, the term of this Lease for Premises #2
shall commence on (a) the date on which Landlord gives notice to Tenant that
Landlord's Work and/or Tenant Improvements will be Substantially Completed (as
defined in Exhibit "E"), subject to the provisions of Exhibit "E", or (b) the
date on which Tenant (or its agent) uses or occupies any portion of Premises #2,
whichever occurs first. The Substantial Completion (as defined in Exhibit "E")
of Landlord's Work and/or Tenant Improvements shall be subject to reasonable
extensions and delays resulting from acts of God, fire, strikes, lockouts, labor
trouble, inability to procure materials by reason of governmental restrictions,
riots, insurrection, war or other causes beyond the reasonable control of
Landlord. If Substantial Completion (as defined in Exhibit "E") of Landlord's
Work and/or Tenant Improvements is delayed by reason of any Tenant Delay and/or
Tenant's performance of Tenant's Work (both as hereinafter defined), the date of
Substantial Completion shall be accelerated by one (1) day for each day of
delay. In no event shall Landlord be required to commit personnel to the
performance of Landlord's Work and/or Tenant Improvements to negate a tenant
delay. The term "Tenant Delay" shall mean any delay that Landlord may encounter
in the completion of Landlord's Work and/or Tenant Improvements by reason of any
act, neglect, failure or omission of Tenant, its agents, servants, contractors,
architect or employees, in the performance of Tenant's obligations under this
Lease Amendment or exhibits hereto, including, but not limited to:
a. Any delay in submission of or inadequacy, after notice
of such inadequacy, of the information which must be
provided by Tenant to Landlord which is necessary for
Landlord to complete Landlord's Work and/or Tenant
Improvements;
b. Any delay due to changes made by or on behalf of Tenant,
at Tenant's request, regarding Landlord's Work and/or
Tenant Improvements;
c. Any delay due to Tenants request for items to be
installed within the Premises that have a delivery date
which does not provide sufficient time for installation
prior to the otherwise anticipated date of Substantial
Completion or that will delay the installation of any
other item of Landlord's Work and/or Tenant
Improvements;
d. Any delay due to Tenant performing Tenants Work or
otherwise interfering with Substantial Completion of
Landlord's Work and/or Tenant Improvements, e.g.,
failure to make payments to Landlord as required under
Exhibit E of this Agreement.
1.8 Base Rent:
A. Tenant shall pay Base Rent to Landlord for Premises #1 from
Commencement Date #1 in accordance with the following schedule:
Year One (1) $ 104,236.00 per annum
$ 8,686.33 per month
Year Two (2) $106,841.90 per annum
$ 8,903.49 per month
Year Three (3) $ 109,512.95 per annum
$ 9,126.08 per month
Year Four (4) $ 112,250.77 per annum
$ 9,354.23 per month
Year Five (5) $115,057.04 per annum
$ 9,588.09 per month
Year Six (6) $127,409.47 per annum
$ 10,617.46 per month
Year Seven (7) $130,594.71 per annum
$ 10,882.89 per month
- 2 -
<PAGE>
Year Eight (8) $ 133,859.57 per annum
$ 11,154.96 per month
Year Nine (9) $ 137,206.06 per annum
$ 11,433.84 per month
Year Ten (10) $ 140,636.21 per annum
$ 11,719.68 per month
Year Eleven (11) $144,152.12 per annum
$ 12,012.68 per month
B. Tenant shall pay Base Rent to Landlord for Premises #2 from
Commencement Date #2 in accordance with the following schedule:
Month One (1) through $441,782.00 per annum
Month Twelve (12) $ 36,815.17 per month
Month Thirteen (13) $ 452,826.55 per annum
through Month Twenty Four (24) $ 37,735.55 per month
Month Twenty Five (25) $464,147.21 per annum
through Month Thirty-six (36) $ 38,678.93 per month
Month Thirty-Seven (37) $ 475,750.89 per annum
through Month Forty-Eight (48) $ 39,645.91 per month
Month Forty-nine (49) $ 487,644.67 per annum
through Month Sixty (60) $ 40,637.06 per month
Month Sixty-one (61) $ 539,997.78 per annum
through Month Seventy-Two (72) $ 44,999.82 per month
Month Seventy-Three (73) $ 553,497.72 per annum
through Month Eighty-Four (84) $ 46,124.81 per month
Month Eighty-Five (85) $567,335.17 per annum
through Month Seventy-Two (96) $ 47,277.93 per month
Month Ninety-Seven (97) $ 581,518.55 per annum
through Month One Hundred Eight (108) $ 48,459.88 per month
Month One Hundred Nine (109) $ 596,056.51 per annum
through Month One Hundred Twenty (120)$ 49,671.38 per month
Month One Hundred Twenty-One (121) $ 610,957.92 per annum
through Month One Hundred $ 50,913.16 per month
Twenty-Seven (127)
1.9 Security Deposit: $325,000.00 (subject to reduction pursuant to
Article 64).
1.10 Tenant's Percentage: The percentage for the purposes of this
Lease, shall be 4.47% (.0447).
- 3 -
<PAGE>
1.11 Permitted Use: Subject to the terms and conditions of this
Lease, Premises #2 shall be used for general and administrative offices and
Premises #1 shall be used (i) as a laboratory for a telecommunications business
and (ii) for the operation of a telecommunications switch and other
telecommunications operations, however, at Tenant's option, the Premises may be
used for general and administrative offices only.
1.12 Lease Year: The period of twelve (12) months or less commencing
with the Commencement Date #1 and ending at midnight on December 31, 2000, each
successive period of twelve (12) months thereafter during the Lease Term, and
the final period of twelve (12) months or less commencing on January 1 of the
year in which the Lease Term expires. During any Lease Year within the Lease
Term that is less than twelve (12) full months, any amount to be paid for such
period shall be prorated, based on the actual number of months and the actual
number of days of any partial month assuming each month to have thirty (30)
days.
1.13 Anything in this lease to the contrary notwithstanding,
provided Tenant is not in monetary or material nonmonetary default (after the
expiration of any applicable notice and cure period) under the terms, covenants
and conditions of this Lease, Tenant shall have the right to use and occupy
Premises #1 free of Base Rent, for a period beginning with Commencement Date #1
through and including the date which is seven (7) months after Commencement Date
#1 (but Tenant shall pay all Additional Rent [hereinafter defined] and any
direct charges during the aforesaid free rent period), after which period the
Base Rent payments shall commence for Premises #1 (the "Rent Commencement Date")
in accordance with the terms of this Lease.
1.14 INTENTIONALLY DELETED
1.15 Tenant acknowledges and agrees that, in lieu of Operating
Expenses, a two and a half percent (2.5%) annual increase of the Base Rent has
been included in the Base Rent reserved hereunder.
1.16 Tenant acknowledges and agrees that, in lieu of any rent
abatement for Premises #2, Landlord is providing the Required Amps (as defined
in Exhibit "E") to the Premises.
2. Lease Grant.
2.1 In consideration of the Rent (as hereinafter defined) to be paid
and the other covenants and agreements to be performed by Tenant, Landlord does
hereby lease, demise and let unto Tenant Premises #1 [a portion of the tenth
(10th) floor], shown on the plan attached hereto as Exhibit "A" and incorporated
herein by reference, commencing on Commencement Date #1 and ending on the last
day of the Lease Term, unless sooner terminated as herein provided. In addition,
in consideration of the Rent (as hereinafter defined) to be paid and the other
covenants and agreements to be performed by Tenant, Landlord does hereby lease,
demise and let unto Tenant Premises #2 (a portion of the tenth (10th) floor],
shown on the plan attached hereto as Exhibit "A" and incorporated herein by
reference, commencing on Commencement Date #2 and ending on the last day of the
Lease Term, unless sooner terminated as herein provided. No easement for light,
air or view is granted, given or implied herein.
2.2 If this Lease is executed before the Premises become vacant, or
otherwise available for occupancy, or if any tenant or occupant of the Premises
holds over, and Landlord cannot acquire possession of the Premises prior to the
full execution and delivery of the Lease by both parties Landlord shall not be
in default hereunder, and Tenant, provided Landlord shall have Substantially
Completed Landlord's Work and Tenant Improvements in accordance with this Lease,
shall accept possession of the Premises when Landlord is able to tender the
same, and such date shall be deemed to be the date Tenant shall have accepted
the same as suitable for the purposes herein intended and to have acknowledged
that the same comply with Landlord's obligations. Within ten (10) days after
request of Landlord, Tenant shall give Landlord a document confirming
Commencement Date #1 and Commencement Date #2, and certifying that Tenant has
accepted delivery of the Premises and that the condition of the Premises
complies with Landlord's obligations hereunder. Such document shall be in the
form attached hereto as Exhibit "B" by this reference incorporated herein.
Notwithstanding anything to the contrary contained in any other Article of this
Lease, Landlord shall deliver possession of Premises #2 to Tenant on or before
ninety (90) days from the date that (i) Landlord and Tenant have approved of the
Working Drawings (as defined in Exhibit "E"), (ii) Landlord has obtained
- 4 -
<PAGE>
permits to commence the Tenant Improvements (as defined in Exhibit "E") for
Premises #2 and (iii) Tenant has received notice from Landlord that the Tenant
Improvement Costs (as defined in Exhibit "E") do not exceed the Office
Improvement Allowance (as defined in Exhibit "E"); however, in the event there
is an excess, the date shall be the date that Tenant agrees to pay Landlord for
the excess of the Tenant Improvement Costs over the Office Improvement Allowance
(the "Outside Date"). If Landlord does not deliver possession of Premises #2 as
required hereunder to Tenant on or before the Outside Date (except if Landlord's
failure is due to a Tenant Delay or force majeure, in which case such Outside
Date shall be extended one [11 day for each day of such Tenant Delay or force
majeure), then the date Tenant begins to pay Base Rent for Premises #2 shall be
postponed two (2) days for each day after the Outside Date that Landlord shall
have failed to so deliver Premises #2 as required to Tenant. Notwithstanding
anything to the contrary contained in any other Article of this Lease, Landlord
shall deliver possession of Premises #1 to Tenant on or before ninety (90) days
from the full execution and delivery of this Lease to Tenant or it's attorney
(the "Outside Date"). If Landlord does not deliver possession of Premises #1 as
required hereunder to Tenant on or before the Outside Date (except if Landlord's
failure is due to a Tenant Delay or force majeure, in which case such Outside
Date shall be extended one [1] day for each day of such Tenant Delay or force
majeure), then the date Tenant begins to pay Base Rent for Premises #1 shall be
postponed two (2) days for each day after the Outside Date that Landlord shall
have failed to so deliver Premises #1 as required to Tenant. Notwithstanding
anything to the contrary contained in the foregoing, in the event Landlord does
not provide six hundred (600) amps of power to Premises #1 by July 15, 2000,
Base Rent shall be tolled for Premises #1 until such time as said power is
delivered.
3. Rent.
3.1 Tenant agrees to pay to Landlord in advance on or before the
first day of each month the Base Rent, subject to adjustment as hereinafter
provided, without deduction or set off, for each month of the entire Lease Term,
except as provided in Section 1.13 or elsewhere in this Lease. The following
shall be due and payable by Tenant to Landlord upon execution of this Lease: (i)
the first monthly installment of Base Rent for Premises #1 ($8,686.33), (ii) the
first monthly installment of Base Rent for Premises #2 ($36,815.17), (iii) the
estimated monthly Electric Charge (hereinafter defined) for Premises #1
[$789.67], (iv) the estimated monthly Electric Charge (hereinafter defined) for
Premises #2 [$2,510.13], (v) the security deposit required under Article 64
($325,000.00) and (vi) the additional charge of $13,333.32 payable to Landlord
for the Required Amps (as hereinafter defined). The monthly installments of Base
Rent shall be due and payable without demand on or before the first day of each
calendar month thereafter during the Lease Term. Base Rent for any period of
less than a full month shall be prorated, based on one-thirtieth (1/30) of the
current Base Rent for each day of the partial month this Lease is in effect.
3.2 Intentionally deleted.
3.3 If any installment of the Base Rent, or any other sums owed by
Tenant to Landlord under this Lease, is not received within ten (10) days after
the due date thereof, without implying Landlord's consent to such late payment,
or if Landlord pays a sum on behalf of or for Tenant (which Landlord may do in
Landlord's sole and absolute discretion after said ten [10] day period), Tenant,
to the extent permitted by law, agrees to pay, in addition to said installment
of the Base Rent or such other sum owed, a late payment charge equal to one
percent (1%) of the installment of the Base Rent or such other sums owned. Said
late payment charge shall constitute liquidated damages and shall be for the
purpose of reimbursing Landlord for additional costs and expenses which Landlord
expects to incur in connection with the handling and processing of late
installment payments of the Base Rent and such other sums owed by Tenant to
Landlord hereunder. If there is a late payment by Tenant, the damages resulting
to Landlord will be difficult to ascertain precisely, and the foregoing charge
constitutes a reasonable and good faith estimate by the parties of the extent of
such damages and does not constitute interest. Notwithstanding the foregoing,
such late charges shall not apply to any sums which may have been advanced by
Landlord to or for the benefit of Tenant pursuant to this Lease. If any check
delivered to Landlord by Tenant in payment of Base Rent or Additional Rent is
not honored by the financial institution upon which such check was drawn and is
returned to Landlord for any reason whatsoever, Landlord may impose, as
Additional Rent, a returned check service charge of $50.00 each time a check is
not honored and returned to Landlord. Such returned check service charge shall
be in addition to and not in lieu of any late payment charge. If any two (2)
checks delivered to Landlord by Tenant during a Lease Year in payment of Base
Rent or Additional Rent are not honored by the financial institution upon which
such checks were drawn are
- 5 -
<PAGE>
returned to Landlord for any reason whatsoever, Landlord may require, upon
written notice to Tenant, that any and all subsequent payments of Base Rent or
Additional Rent be made by either cash, money order or cashier's check for the
following twelve (12) months of the Lease Term.
3.4 The Security Deposit shall be held by Landlord as security for
the performance by Tenant of Tenant's covenants and obligations under this
Lease. Such deposit shall not be considered an advance payment of Rent or a
measure of Landlord's damages in a default by Tenant. Upon any event of default
by Tenant (after the expiration of any applicable notice and cure period),
Landlord may (but shall not be obligated to), without prejudice to any other
remedy, use the Security Deposit to the extent necessary to fund any arrearage
of Rent and any other damage, injury, expense or liability caused to Landlord by
such event of default. Following such application of the Security Deposit,
Tenant shall pay to Landlord within five (5) business days of Landlord's written
demand the amount so applied to restore the Security Deposit to its original
amount. If there is not then an event of default, any remaining balance of the
Security Deposit shall be returned by Landlord to Tenant upon termination of
this Lease (or, if applicable, upon the curing of such default), with interest
as provided for hereinafter. If Landlord transfers its interest in the Premises
during the Lease Term, Landlord may assign the Security Deposit to the
transferee and thereafter shall have no further liability for the return of the
Security Deposit, but only if Landlord's transferee acknowledges receipt of
same. Tenant shall receive interest on the Security Deposit, if the Security
Deposit is now or hereafter in the form of cash, less a one percent (1%) annual
administrative fee payable to Landlord.
3.5 All sums other than Base Rent payable by Tenant to Landlord
under this Lease shall constitute "Additional Rent". Base Rent and Additional
Rent are herein referred to collectively as "Rent". All Rent due hereunder shall
bear interest from that date which is ten (10) days after the due date until
paid in full at a rate equal to the prime interest rate in effect from day to
day as reported in the Wall Street Journal, plus two (2) percentage points (the
"Default Rate"). If more than the maximum legal rate of interest should ever be
collected with regard to any sum due hereunder, said excess amount shall be
credited against future payments of Rent accruing thereafter. If no such further
Rent accrues hereunder, said excess sums shall be promptly refunded by Landlord
to Tenant upon demand by Tenant.
3.6 No payment by Tenant or receipt by Landlord of a lesser amount
than the correct Rent shall be deemed to be other than a payment on account, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment be deemed an accord and satisfaction. Landlord may accept such
check of payment without prejudice to Landlord's right to recover the balance or
to pursue any other remedy.
3.7 Intentionally deleted.
3.8 If the Base Rent or any Additional Rent shall be or become
uncollectible by virtue of any law, governmental order or regulation, or
direction of any public officer or body, Tenant shall enter into such agreement
or agreements and take such other action (without additional expense to Tenant)
as Landlord may request, as may be legally permissible, to permit Landlord to
collect the maximum Base Rent and Additional Rent from time to time during the
continuance of such legal rent restriction as may be legally permissible, but
not in excess of the amounts of Base Rent or Additional Rent payable under this
Lease. Upon the termination of such legal rent restriction, (a) the Base Rent
and Additional Rent, after such termination, shall become payable under this
Lease in the amount of the Annual Rent and Additional Rent set forth in this
Lease for the period following such termination; and (b) Tenant shall pay to
Landlord, if legally permissible, an amount equal to (i) the Base Rent and
Additional Rent which would have been paid pursuant to this Lease, but for such
rent restriction, less (ii) the Base Rent and Additional Rent paid by Tenant to
Landlord during the period that such rent restriction was in effect.
4. A. Increases in Base Rent. The terms defined below shall for the
purposes of this Lease have the meanings herein specified:
(i) "Additional Rent": All payments payable under this Lease
(however denominated) by the Tenant to the Landlord other than Base Rent
(including, but not limited to, amounts due under Articles 4 and 52 of the
Lease). All Additional Rent shall be deemed to be rent for all purposes
under this Lease, so that the failure to pay any Additional Rent shall
give rise to the same right and remedies reserved to the Landlord under
this Lease, at law or in equity as if such nonpayment were of Base Rent
reserved hereunder.
- 6 -
<PAGE>
(ii) "Taxes": All real estate taxes, sewer rents, water frontage
charges, and assessments, special or otherwise (including but not limited
to any improvement district charges or BID fees), payable to the City of
Newark or any other taxing authority with respect to the Building
containing the Demised Premises (the "Building") and the land thereunder
(the "Land"), and all taxes payable with respect to the rentals payable
hereunder other than general income and gross receipts taxes (except that
general income and gross receipts taxes shall be included if covered by
the provisions of the following sentence). Taxes shall also include any
taxes, charges or assessments payable to any taxing authority in whole or
in part in lieu of the present method of real estate taxation, provided
such substitute taxes, charges and assessments are computed as if the
Building were the sole property of the Landlord subject to said substitute
tax, charge or assessment. With respect to any comparison Tax Year, all
expenses, including reasonable legal fees, experts' and other witnesses'
fees, incurred in contesting the validity or amount of any Taxes or in
obtaining a refund of Taxes or in attempting to prevent an increase in
Taxes, may be considered as part of the Taxes for such Tax Year. Tenant
shall not have the right to bring tax certiorari proceedings or other
proceedings contesting the amount or validity of any Taxes.
Notwithstanding anything to the contrary contained in the Lease, Taxes
shall not include any general corporation, unincorporated business,
succession, gains or transfer tax levied on Landlord, or any occupancy or
commercial rent tax (if any) payable by virtue of all or a portion of the
Building or any taxes or other amounts payable on account of the operation
of any tax incentive or abatement program applicable to the Building, the
benefits of which were not theretofore made afforded to Tenant.
(iii) "Base Tax Year": The calendar year commencing January 1, 2000
and ending December 31, 2000.
(iv) "Base Taxes": The Taxes actually paid with respect to the Base
Tax Year.
(v) "Tax Year": Each twelve-month period commencing January 1st
during the term of this Lease.
(vi) "Tenants Percentage" shall mean 4.47% (.0447).
(vii) - (xii) Intentionally deleted.
(xiii) "Comparison Year" shall mean, with respect to Taxes, any Tax
Year subsequent to the Base Tax Year, for any part or all of which there
is additional rent payable in addition to the Base Rent provided for
hereunder (hereinafter sometimes referred to as the "Rent").
(xiv) The term "Landlord's Statement" shall mean an instrument or
instruments prepared by Landlord comparing Taxes for the Base Tax Year
with Taxes for the Comparison Year in question, and setting forth the
additional rent due from Tenant for such Comparison Year pursuant to the
provisions of this Article 4. Landlord shall provide, upon request, copies
of documentation to Tenant substantiating any amounts charged to Tenant
for porter wage or operating expenses, Real Estate Taxes, insurance, or
any other Additional Rent categories.
B. (i) If Taxes payable for any Comparison Year shall exceed the Base
Taxes, Tenant shall pay as additional rent for such Comparison Year, an
amount equal to Tenant's Percentage of the amount of such excess. If the
amount of Taxes payable during the Base Tax Year is reduced by final
determination of legal proceedings, settlement or otherwise, the reduced
amount of such Taxes shall thereafter determine the amount of the increase
in the Rent pursuant to this Article 4. The Additional Rent theretofore
paid or payable under this Article 4 shall be recomputed on the basis of
such reduction, and the Tenant shall pay to Landlord as Additional Rental
within twenty (20) days after being billed therefore, any deficiency
between the amount of the increase in the Rent theretofore computed and
the amount thereof due as a result of such recomputation.
(ii) Provided that Tenant is not then in monetary default or
material nonmonetary default of any terms, conditions or covenants of this
Lease, that Tenant is not in stipulation of settlement with Landlord, that
Tenant is not operating under a rental reduction from Landlord and further
provided that Tenant has paid its
- 7 -
<PAGE>
proportionate share of the real estate tax increase for which a refund has
been awarded to Landlord, if Landlord shall receive a refund of Taxes for
any Comparison Year with respect to which Tenant paid Additional Rent by
reason of an increase in Taxes, Landlord shall set forth in the first
Landlord's Statement thereafter submitted to Tenant the amount of such
refund and the amount of the legal fees and other expenses incurred in
connection with the collection of the refund, Tenant shall receive a
credit against the installment or installments of Additional Rent
allocable to Taxes next falling due equal to Tenant's Percentage of the
amount by which the refund exceeds said fees and expenses, but in no event
shall the credit exceed the amount of Additional Rent paid by Tenant in
respect to Taxes for said Comparison Year.
C. Intentionally deleted.
D. (i) At any time during or after any Comparison Year, Landlord may
render to Tenant a Landlord's Statement or Statements showing a comparison
of the Taxes payable for the Comparison Year with the Base Taxes and the
amount payable as additional rent resulting from each of such comparisons.
Landlord's failure to render a Landlord's Statement during or with respect
to any Comparison Year shall not eliminate or reduce Tenant's obligation
to pay Additional Rent pursuant to this Article 4 for such Comparison
Year, nor prejudice Landlord's right to render a Landlord's Statement
during or with respect to any subsequent Comparison Year.
(ii) With respect to a Landlord's Statement showing Additional Rent
due as a result of increased Taxes in a Comparison Year over Base Taxes,
Tenant shall pay to Landlord the full amount of such increase within
twenty (20) days after the rendition of such Landlord's Statement.
E. The expiration or termination of this Lease during any Comparison Year
for any part or all of which there is Additional Rent payable by Tenant under
this Article 4 shall not affect the rights or obligations of the parties hereto
respecting such Additional Rent and any Landlord's Statement relating to such
increase may, on a pro rata basis, be sent to Tenant (and any such reimbursement
due to Tenant hereunder shall be paid by Landlord to Tenant) subsequent to, and
all such rights and obligations shall survive, and be prorated as of, any such
expiration or termination. Any payments due under such Landlord's Statement
shall be payable with twenty (20) days after such statement is sent to Tenant.
F. Landlord acknowledges that it has applied to the City of Newark for a
long-term property tax abatement, pursuant to the provisions of the Urban
Renewal Corporation and Association Law of 1961, as amended (N.J.S.A. 40:50c-40
et. seq.), as more commonly referred to as the "Fox-Lance" Act (referred to
herein as the "Tax Program"). In the event that the City of Newark approves
Landlord's application for the Tax Program, the Taxes payable by Tenant under
this Article 4 shall be governed under the Tax Program. In the event that the
City of Newark rejects Landlord's application for the Tax Program and Landlord
is denied long-term tax abatement benefits, Tenant shall pay its percentage
share of Taxes in each Tax Year, subsequent to the Base Tax Year, as follows:
(i) In the first (1st) Comparison Year, Tenant shall pay the
lesser of (a) Tenant's Percentage of the excess amount of
Taxes in that Comparison Year over the Base Taxes and (b) $.60
per rentable square foot multiplied by the total rentable
square feet of the Premises;
(ii) In each and every Comparison Year thereafter (but subject to
[iii] hereinafter), Tenant shall pay the lesser of (a)
Tenant's Percentage of the excess amount of Taxes in that
Comparison Year over the Base Taxes and (b) $1.40 per rentable
square foot multiplied by the total rentable square feet of
the Premises; and
(iii) Notwithstanding anything to the contrary in subparagraph (i)
or (ii) above, in no event shall Tenant's payment under this
Article 4F in any Comparison Year (a) exceed $.60 per rentable
square foot from that amount paid by Tenant in the previous
Comparison Year and (b) exceed $1.40 per rentable square foot
multiplied by the total rentable square feet of the Premises.
G. In no event shall the Base Rent payable under this Lease be reduced.
- 8 -
<PAGE>
H. Within ninety (90) days of its receipt of the Landlord's Statement,
Tenant at its sole cost and expense shall have the right to review in Landlord's
offices and during normal business hours the items in support of the
calculations within the Landlord's Statement. If within such ninety (90) day
period, Tenant does not give written notice stating in detail reasonable
objections to such calculations, Tenant shall be deemed to have given approval
of such calculations. Failure to pay such additional rent, whether or not under
protest, shall constitute an Event of Default under Article 18 of this Lease.
I. Any Landlord Statement or Operating Statement given by Landlord
pursuant to this Article 4 shall be binding upon Tenant unless, within ninety
(90) days after its receipt of such notice, Tenant notifies Landlord of its
disagreement therewith, specifying the portion thereof with which Tenant
disagrees. Pending resolution of such dispute, Tenant shall, without prejudice
to its rights, pay all amounts determined by Landlord to be due, subject to
prompt refund by Landlord (without interest) upon any contrary determination.
5. Landlord's Obligations.
5.1 Subject to the limitations hereinafter set forth, Landlord shall
furnish Tenant while occupying the Premises facilities to provide (a) water at
those points of supply provided for general use of tenants of the Building: (b)
heat and air conditioning in season from 8:00 a.m. to 6:00 p.m. Monday through
Friday and from 9:00 a.m. to 1:00 p.m. on Saturdays, except for holidays
("Regular Business Hours"), at temperatures and amounts reasonably considered by
Landlord to be standard, such service at night and on Saturday afternoons,
Sundays and holidays to be furnished only at the written request of Tenant, who
shall pay upon demand Landlord's customary charges for such services; and (c)
elevators for ingress and egress to the floor on which the Premises are located,
in common with other tenants, provided that Landlord may limit the number of
elevators to be in operation at times other than during customary business hours
for the Building and on holidays. Landlord also agrees to maintain the public
and common areas (the "Common Facilities") of the Building, such as lobbies,
stairs, corridors and rest rooms, in reasonably good order and condition, except
for damage caused by Tenant, or its employees, agents or invitees and Landlord
shall make all required repairs to the structural elements of the Premises and
the Building systems servicing the Premises, unless the necessity for same is
due to the acts, negligence or omissions of the Tenant, its agents, employees or
invitees. Tenant shall take good care of and keep the premises clean, however,
Landlord shall provide basic janitorial services only to Premises #2 (as shown
on the plan attached hereto as Exhibit "A") in accordance with standard Building
practice and Exhibit "G" annexed hereto. If Tenant desires services specified in
this Section at any time other than times herein designated, such service shall
be supplied to Tenant only at the request of Tenant delivered to Landlord before
3:00 p.m. on the date which is two (2) business days preceding such extra usage.
Tenant shall pay to Landlord as Additional Rent the cost of such service upon
receipt of a bill thereafter. Landlord shall also have a security guard and/or
attendant in the Building at all times. Tenant shall have twenty four (24) hour
access to the Demised Premises every day of the year, including holidays. HVAC
shall be provided to maintain year round comfort based on the ASHRAE Comfort
Chart. This is based on (i) cooling one and one-half (1 .5) watts per square
foot lighting and two and one-half (2.5) watts per square foot power, (ii) one
person for one hundred (100) square feet and (iii) the use of Building standard
internal shading devices by the Tenant. Ventilation air (fresh air) shall be
provided at the rate of .2 CFM per square foot. Heating shall be provided
through perimeter cast iron radiators during Regular Business Hours. Zoning
shall be provided utilizing self contained thermostatic control valves, with one
control per 1,080 rentable square feet for perimeter zones and one control per
1,800 rentable square feet for interior zones. Provided Tenant is not in default
under the Lease, beyond the expiration of any applicable notice and cure period
(subject to any other terms and provisions of the Lease), Landlord covenants and
agrees with Tenant that Tenant shall and may peacefully and quietly have, hold
and enjoy the Premises hereby demised for the intended purpose as hereinbefore
described.
5.2 Subject to Landlord's rights under this Lease and the rules and
regulations set forth in Exhibit C, Tenant, and its licensees, concessionaires,
employees and customers (for purposes of this Article, collectively "Tenant")
shall have the non-exclusive right to use the "Common Areas" (which shall be
defined as the public and common areas designated for common use, as constituted
from time to time), in common with Landlord, other tenants of the Project and
other persons entitled to use the same. Tenant shall not interfere with the
rights of other persons to use the Common Areas. Landlord may temporarily close
parts of the Common Areas for such periods of time as
- 9 -
<PAGE>
may be necessary for (i) temporary use as a work area in connection with the
construction of improvements within the Building or contiguous property, (ii)
repairs or alterations in or to the Common Areas or to any utility type
facilities, (iii) preventing the public from obtaining prescriptive rights in or
to the Common Areas, (iv) security reasons, or (v) doing and performing such
other acts as in the use of good business judgment Landlord shall determine to
be appropriate for the Building; provided, however, that Landlord shall use
reasonable efforts not to unduly interfere with or disrupt Tenant s business.
Landlord shall have the right at any time to change the arrangement and/or
locations of entrances, sidewalks, landscaped areas (if any), passageways or
other parts of the Common Areas and to change the name, number or designation by
which the Building is commonly known. Landlord agrees that while exercising such
right of entry or making such repairs, replacements or improvements, Landlord
shall perform its work diligently and shall use best efforts to avoid materially
interfering with Tenant's business or disrupting same, but in no event shall
Landlord be required to incur overtime charges for same.
5.3 Subject to the provisions of Article 5.9 hereinafter, Landlord
shall not be liable or responsible to Tenant for loss, damages or expense Tenant
sustains or incurs if either the quantity or character of any utility service is
changed or is no longer available or is no longer suitable for Tenant's
requirements however, Landlord shall use reasonable diligence to repair any
damage if the responsibility thereafter is that of Landlord under this Lease.
Subject to the provisions of Article 5.9 hereinafter, if Landlord fails to use
the aforesaid reasonable diligence and a material interruption in service
continues for twenty (20) business days after written notice from Tenant to
Landlord detailing the interruption in service, then Base Rent and Additional
Rent shall be abated thereafter until such material interruption in service is
cured by Landlord. Tenant covenants and agrees that its use of electric current
shall never exceed the capacity of existing feeders to the Building or the
risers or wiring installations.
5.4 Subject to the provisions of Article 5.9 hereinafter, failure to
any extent to make available, or any slow-down, stoppage or interruption of,
these defined services resulting from any cause (including, but not limited to,
Landlord s compliance with (a) any voluntary or similar governmental or business
guideline now or hereafter published or (b) any requirements now or hereafter
established by any governmental agency, board or bureau having jurisdiction over
the operation and maintenance of the Building) shall not render Landlord liable
for damages to person, property, or business, nor be construed as an eviction of
Tenant or work an abatement of Rent, nor relieve Tenant from fulfillment of any
covenant or agreement hereof. If any equipment or machinery furnished by
Landlord break down or for any cause cease to function properly, Landlord shall
use reasonable diligence to repair same promptly, but Tenant shall have no claim
for abatement of Rent or damages for any interruptions in service occasioned
thereby or resulting therefrom. Subject to the provisions of Article 5.9
hereinafter, if Landlord fails to use the aforesaid reasonable diligence and a
material interruption in service continues for twenty (20) business days after
written notice from Tenant to Landlord detailing the interruption in service,
then Base Rent and Additional Rent shall be abated thereafter until such
material interruption in service is cured by Landlord.
5.5 Except as otherwise provided in this Lease, Tenant's obligations
to pay Additional Rent pursuant to this Article 5 shall continue to the actual
date of expiration or termination of this Lease. If Landlord terminates this
Lease pursuant to Article 19 without waiving Landlord's right to seek damages
against Tenant, Tenant's obligation to pay any and all Additional Rent pursuant
to this Article 5 shall not terminate as a result thereof.
5.6 Landlord may at any time remodel or alter the Building or the
Project, or change the location of any entrance thereto, or any other portion
thereof not occupied by Tenant, and the same shall not constitute a
constructive, actual, total or partial eviction.
5.7 If an excavation shall be made upon land adjacent to the
Premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation license to enter the Premises for
the purpose of doing such work as said person shall deem necessary to preserve
the wall or the Building from injury or damage and to support the same by proper
foundation without any claim for damages or indemnity against Landlord, or
diminution or abatement of rent. Landlord shall use reasonable efforts to insure
that said repair or alteration does not unreasonably interfere with Tenant's use
of the Premises but in no event shall Landlord be required to incur any costs
for same.
- 10 -
<PAGE>
5.8 Landlord shall replace, at the sole cost and expense of Tenant,
any glass damaged or broken from any cause whatsoever in and about the Premises,
except if caused by the negligence or willful acts of Landlord. Bills therefor
shall be due from and payable by Tenant within ten (10) days of delivery, and
the amount thereof shall be deemed to be, and paid as, Additional Rent.
5.9 Notwithstanding anything to the contrary contained in this
Article, if (i) there shall be an interruption or suspension of any of the
Building's services, causing an interruption of the conduct of Tenant's business
in the Demised Premises, as a result of the performance by Landlord of its
repair obligations under this Lease (an "Interruption"), (ii) such Interruption
shall continue for at least twenty (20) consecutive business days following
receipt by Landlord of written notice from Tenant describing such Interruption,
(iii) such Interruption shall materially impair the operation of Tenant's
business in the Demised Premises, render the Demised Premises inaccessible or
untenantable and, in each event, cause Tenant not to use the Demised Premises
for the conduct of Tenants business, (iv) such Interruption shall not have been
caused, by reason of the failure on the part of any public utility company
servicing the Building to provide such applicable service and (v) such
Interruption shall not have been caused, in whole or in part, by reason of (a)
an event which is covered under any article of the Lease relating to casualty or
condemnation, (b) an act or omission on the part of Tenant in default or
violation of this Lease or Tenant's obligations hereunder or (c) the negligence
of Tenant or Tenant's agents, servants, employees, contractors or visitors (with
respect to visitors, when in the Demised Premises) (an Interruption that
satisfies all of the foregoing conditions, a "Material Interruption"), then, as
Tenant's sole remedy in connection with such Material Interruption, Tenant shall
be entitled to a fair diminution of Base Rent for the period which shall begin
on the twenty-first (21st) consecutive business day of such Material
Interruption and which shall end on the earlier of (x) the day following the day
on which such Material Interruption shall cease or (y) Tenant shall recommence
the use of the Demised Premises for the conduct of Tenants business.
6. Intentionally deleted.
7. Permitted Use. Tenant shall use the Premises only for the Permitted
Use. Tenant will not occupy or use the Premises, or permit any portion of the
Premises to be occupied or used, for any business or purpose other than the
Permitted Use or for any use or purpose which is unlawful in part or in whole or
deemed to be disreputable in any manner or extra hazardous on account of fire,
nor shall Tenant use, store, or discharge any "Hazardous Material" as defined in
Section 45 hereof, nor permit anything to be done which will in any way increase
the rate of insurance on the Building or contents; and if, by act of Tenant,
there is any increase in the rate of insurance on the Building or contents
created by Tenant's acts or conduct, then such acts of Tenant shall be an event
of default hereunder and Tenant shall pay to Landlord the amount of such
increase within ten (10) business days of Landlord's written demand.
Notwithstanding anything to the contrary contained in this Lease, Landlord
represents that (provided Tenant complies with the terms and conditions of this
Lease) insurance cost of the Building shall not increase as a result of Tenant's
contemplated uses, as set forth in the Lease, and as such, Landlord shall not
pass on any increased insurance costs of the Building onto Tenant. Acceptance of
such payment shall not constitute a waiver of any of Landlord's other rights
provided herein. Tenant will conduct its business and control its agents,
employees and invitees to not create any nuisance, nor interfere with, annoy or
disturb other tenants or Landlord in the management of the Building. Tenant will
maintain the Premises in a clean, healthful and safe condition and will comply
with all orders, rules and regulations of the New Jersey Board of Fire
Underwriters (or equivalent agency or authority) and the Insurance Services
Office and all laws, ordinances, orders, rules and regulations (state, federal,
municipal and other agencies of bodies having jurisdiction thereof) with
reference to the use, condition or occupancy of the Premises as well as the
provisions of all recorded documents affecting the Building. Except as may be
provided for otherwise in this Lease, Tenant will not, without the prior consent
of Landlord, paint, install lighting or install any signs, window or door
lettering or advertising media of any type on or about the Premises. Tenant
shall not place a load upon any floor of the Premises exceeding the floor load
per square foot which such floor was designated to carry or which is allowed by
law. Landlord hereby reserves the right to reasonably prescribe the weight and
position of all safes or other unusually heavy equipment which must be placed so
as to distribute the weight. Business machines and mechanical equipment shall be
placed and maintained by Tenant, at Tenant's sole cost and expense, in settings
sufficient in Landlord's reasonable judgement to absorb and prevent transmission
of vibration, noise and annoyance. Tenant shall not install or use in the
Premises any electrical machinery or appliances which in Landlord's sole
judgement may overload the electrical wiring or equipment capacity in the
Premises or the Building. Tenant agrees that the value of
- 11 -
<PAGE>
the Demised Premises and the reputation of the Owner will be seriously injured
if the premises are used for any obscene or pornographic purposes or any sort of
commercial sex establishment. Tenant agrees that Tenant will not bring or permit
any obscene or pornographic material on the premises, and shall not permit or
conduct any obscene, nude, or semi-nude live performances on the premises, nor
permit use of the premises for nude modeling, rap sessions, or as a so-called
rubber goods shops, or as a sex club of any sort, or as a "massage parlor".
Tenant agrees further that Tenant will not permit any of these uses by any
sublessee or assignee of the premises. This Article shall directly bind any
successors in interest to the Tenant. Tenant agrees that if at any time Tenant
violates any of the provisions of this Article, such violation shall be deemed a
breach of a substantial obligation of the terms of this Lease and objectionable
conduct. Pornographic material is defined for the purposes of this Article as
any written or pictorial matter with the prurient appeal or any objects or
instrument that are primarily concerned with lewd or prurient sexual activity.
It is further understood that the Premises may not be used for
residential purposes and that sleeping overnight in the Premises, cooking
(except by way of a microwave or toaster oven) or other such housekeeping
functions are not permitted. The Tenant expressly agrees that they will not use
machinery causing excessive noise or vibration in the Building and will take all
necessary steps to comply with all municipal rules, orders, ordinances and
regulations with respect to the maintenance of combustible material in and upon
the Premises. Tenant shall be permitted to have a refrigerator in the Premises.
Tenant agrees that if at any time Tenant violates any of the
provisions of this Article, such violation shall be deemed a breach of a
substantial obligation of the terms of this Lease and objectionable conduct. A
violation of any of the terms of this provision shall give to the Landlord the
right to restrain the same by injunctive relief and/or exercise any of
Landlord's remedies provided for in the Lease.
8. Tenant's Repairs and Alterations (also see Article 54).
8.1 Tenant will not deface or injure the Building, and will pay the
cost of repairing any damage or injury done to the Building or any part thereof
by Tenant or Tenant's agents, employees or invitees. Tenant shall take good care
of the Premises and keep them free from waste and nuisance of any kind. Tenant
shall keep the Premises, including all fixtures installed by Tenant, in good
condition, and to make all necessary non-structural repairs except those caused
by fire, casualty or acts of God covered by Landlord's insurance policy covering
the Building, (if any). The performance by Tenant of its obligations to maintain
and make repairs shall be conducted only by contractors and subcontractors
consented to by Landlord, and Tenant shall procure and maintain and shall cause
such contractors and subcontractors engaged by or on behalf of Tenant to procure
and maintain insurance coverage against such risks, in such amounts and with
such companies as Landlord requires in connection with such maintenance and
repair. Tenant shall prohibit any contractor it engages or subcontractor or
material suppliers engaged through such contractor from filing any notice or
notices of commencement of public record as a part of or in connection with work
on the Premises. Tenant hereby further covenants and agrees to provide Landlord
with copies of any notices Tenant receives in connection with such work. All
repairs required under the Lease to be performed by Landlord shall be performed
with reasonable diligence and in a manner which shall minimize interference with
the conduct of Tenant's business (but in no event shall Landlord perform same on
an overtime business). Without limiting the generality of the foregoing,
Landlord shall make all repairs and improvements necessary to keep in working
order and condition the Building (including all public and common areas) and all
Building facilities. Landlord shall make structural repairs to the Premises and
also keep in working order and condition the electrical, heating, elevator,
plumbing and other system lines leading to, but not within, the Demised
Premises; provided, however that Landlord shall not be required to make any
repairs which are Tenant's responsibility hereunder or to repair Tenant's trade
fixtures, or any decorations, alterations, additions or improvements installed
by Tenant, or to make any repairs necessitated by the negligence, acts or
omissions of Tenant, its agents, employees or invitees.
8.2 If Tenant fails to make the repairs described above within ten
(10) days after Landlord's written demand of Tenant to repair any damage or
injury to the Premises or the Building for which Tenant is responsible (or a
shorter time period in the event of any emergency), Landlord may at its option
make such repair (however, in the case of an emergency, Landlord shall not have
to provide Tenant with notice prior to Landlord making such repair), and Tenant
shall, within fifteen (15) business days of Landlord's written demand therefor,
pay Landlord for the cost thereof. At the end or other termination of this
Lease, Tenant shall deliver the Premises with all improvements located
- 12 -
<PAGE>
thereon (except as otherwise herein provided) in reasonable repair and
condition, reasonable wear, tear and casualty excepted; and shall deliver to
Landlord all keys to the Premises.
8.3 Tenant will not make or allow to be made any alterations or
physical additions in or to the Premises without the prior written consent of
Landlord which shall not be unreasonably withheld or delayed. All alterations,
additions or improvements (whether temporary or permanent in character) made in
or upon the Premises by Landlord or Tenant shall be Landlord's property on
termination or expiration of this Lease and shall remain on the Premises without
compensation to Tenant, provided that Landlord, at its option, may by notice to
Tenant, require Tenant to remove any such alterations, additions or improvements
at Tenant's cost and restore the Premises to the condition of the Premises at
the Commencement Date, normal wear and tear excepted. All furniture, movable
trade fixtures and equipment installed by Tenant may be removed by Tenant at the
termination of this Lease if Tenant elects and shall be removed if required by
Landlord, or if not removed shall, at the option of Landlord, become the
property of Landlord. All such installations, removals and restoration shall be
accomplished in a good workmanlike manner so as not to damage the Premises or
the structure of the Building or the plumbing, electrical or other utilities.
Tenant shall give Landlord prior written notice of any proposed alterations,
installations, additions or improvements (hereinafter collectively called
"Alterations") with copies of proposed plans and as-built plans upon completion
of the Alterations. Landlord shall, by written notice to Tenant within ten (10)
business days following Landlord's receipt of the proposed Alterations, notify
Tenant whether Tenant shall be required to remove such Alterations prior to the
Expiration Date and restore the Demised Premises to its condition prior to the
installation of such Alterations. All such Alterations shall be done at Tenant's
sole expense and the making thereof shall not interfere with the use of the
Building by other tenants. Notwithstanding the foregoing or any other Article in
this Lease, Landlord shall not forego its aforementioned right to require Tenant
to remove and restore the Premises as it applies to (i) to the Reinforcement (as
defined in Article 54J), (ii) Premises #1, (iii) the Generator (as defined in
Article 62), (iv) the Antennae (as defined in Article 63) and (v) the Cabling
(as defined in Exhibit "D").
8.4 Tenant may contract separately with providers of
telecommunications or cellular products, systems or services for the Premises.
Even though such products, systems or services may be installed or provided by
such providers in the Building, in consideration for Landlord's permitting such
providers to provide such services to Tenant, Tenant agrees that Landlord and
the Landlord Indemnities (defined below) shall in no event be liable to Tenant,
its employees, agents, principals and affiliates for any damages of any nature
whatsoever arising out of or relating to the products, systems or services
provided by such providers (or any failure, interruption, defect in or loss of
the same) or any acts or omissions of such providers in connection with the same
or any interference in Tenant's business caused thereby. Tenant waives and
releases all rights and remedies against Landlord and the Landlord Indemnities
that are inconsistent with the foregoing. "Landlord Indemnities" shall be deemed
to include, but not be limited to, the Landlord's employees, agents, affiliates,
subsidiaries, parent, members, partners, principals and/or shareholders.
8.5 There shall be no allowance to Tenant for a diminution of rental
value of the Premises and no liability on the part of Landlord for
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making any repairs, alterations, additions, or improvements in or to any
portion of the Project or the Premises, or in or to any fixtures or personal
property attached thereto or located therein. If any equipment or machinery
furnished by Landlord break down or for any cause cease to function properly,
Landlord shall use reasonable diligence to repair same promptly, but Tenant
shall have no claim for abatement of Fixed Rent or Additional Rent or damages
for any interruptions in service occasioned thereby or resulting therefrom.
Notwithstanding anything to the contrary contained in the foregoing, but subject
to the terms and provisions of Article 5.9, if Landlord fails to use the
aforesaid reasonable diligence and a material interruption in service continues
for twenty (20) business days after written notice from Tenant to Landlord
detailing the interruption in service, then Base Rent and Additional Rent shall
be abated thereafter until such material interruption in service is cured by
Landlord.
- 13 -
<PAGE>
8.6 Tenant, at its sole cost and expense, shall maintain and repair
any supplemental ventilating, heating and air conditioning systems (if any) in
the Demised Premises. Furthermore, Tenant shall procure, in a prompt and
diligent manner after the execution of this Lease, at its sole cost and expense,
a service contract for said units, and supply a copy of same to Landlord and its
managing agent. In addition, Tenant acknowledges and agrees that said unit(s) is
the property of Landlord, and shall remain at the Demised Premises upon the
termination of this Lease.
9. Subletting and Assigning.
9.1 A. If Tenant shall desire to assign this Lease or to sublet the
Demised Premises in whole or in part, Tenant shall submit to Landlord a written
request for Landlord's consent to such assignment or subletting, which request
shall contain or be accompanied by the following information: (i) the name and
address of the proposed assignee or subtenant; (ii) a description identifying
the space to be assigned or sublet; (iii) the terms and conditions (financial
and otherwise) of the proposed assignment or subletting; (iv) the nature and
character of the business of the proposed assignee or subtenant and of its
proposed use of the Demised Premises; and (v) current financial information and
any other information as Landlord may reasonably request with respect to the
proposed assignee or subtenant and the proposed assignment or subletting.
Landlord shall have the option, to be exercised by notice given to Tenant within
thirty (30) days after the later of (a) receipt of Tenant's request for consent
or (b) receipt of such further information as Landlord may reasonably request
pursuant to clause (v) above to require a surrender of the Demised Premises or
the portion thereto involved as of a date to be specified in said notice (the
"Termination Date") which shall not be earlier than one day before the effective
date of the proposed assignment or subletting or later than sixty-one (61) days
after said effective date, in which event Tenant shall vacate and surrender the
Demised Premises or the portion thereto involved on or before the Termination
Date and the term of this Lease shall end on the Termination Date as if that
were the Expiration Date. Notwithstanding anything to the contrary contained in
the foregoing, if Tenant wishes to assign or sublet, Tenant shall notify
Landlord of its intention to do so (prior to identifying an assignee or
subtenant), with the proposed effective date thereof (and in the case of a
partial sublet, identifying the space to be sublet). This notice shall be deemed
to trigger Landlord's recapture right. If Landlord does not elect to recapture
within thirty (30) days after Tenant's notice, then Tenant shall have six (6)
months to enter into an agreement with a proposed assignee or subtenant, subject
to the terms and provisions of this Article, and submit same to Landlord for
approval, which approval shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, if Landlord does elect to recapture hereunder
within said thirty (30) day period, Tenant may within five (5) business days of
Landlord's election rescind its request, and accordingly, this Lease shall
continue in full force and effect.
B. If Landlord shall not exercise its option under Section A above,
Landlord shall not unreasonably withhold or delay its consent to the proposed
subletting or assignment referred to in Tenants Proposal given pursuant to
Sections A above, but only on the terms set forth therein, provided that the
following further conditions shall be fulfilled:
(1) The Demised Premises shall not, without Landlord's prior
consent, have been otherwise publicly advertised for assignment or
subletting at a rental rate lower than the prevailing rental rate for
comparable space in the Building, and Tenant shall not enter into any
sublease at a rental rate lower than the rental rate prevailing in the
Building at the time of the proposed subletting;
(2) No space shall be sublet nor this Lease assigned to
another tenant, or to a related corporation of any other tenant or to any
other occupant of the Building, if Landlord shall then have available for
rent similar space in the Building;
(3) No subletting or assignment shall be to a person or entity
which has, in Landlords reasonable opinion, a financial standing, is of a
character, is engaged in a business, or proposes to use the Premises in a
manner not in keeping with the standards of the Building;
(4) Any subletting shall be expressly subject to all of the
obligations of Tenant under this Lease and, without limiting the
generality of the foregoing, the sublease shall impose at least the same
restrictions and conditions with respect to use as are contained in
Article 7 and shall specifically provide that there shall be no further
subletting of the sublet premises or assignment or mortgaging of the
sublease;
- 14 -
<PAGE>
(5) That part, if any, of the term of any such sublease or any
renewal or extension thereof which shall extend beyond a date one day
prior to the expiration or earlier termination of the term shall be a
nullity;
(6) The proposed subtenant or assignee shall not be a person
then negotiating with Landlord for the rental of any comparable space in
the Building; to assist Tenant in complying with this clause, at Tenant's
request Landlord shall accurately respond within five (5) business days to
any inquiry from Tenant as to whether a prospective subtenant is then
negotiating with Landlord;
(7) Landlord shall be furnished with a duplicate original of
the sublease or assignment documents together with the request for
Landlord's consent;
(8) In the case of a subletting, Tenant shall pay to Landlord
an amount equal to one-half (1/2) of any Fixed Rent and Additional Rent or
other consideration paid to Tenant by any subtenant which is in excess of
(i) the Base Rent and Additional Rent then being paid by Tenant to
Landlord pursuant to the terms hereof on a per square foot pro rata basis,
and (ii) brokerage fees, advertising and legal fees, fix-up costs and free
rent concessions, if any, incurred in connection with the subletting. All
sums payable hereunder by Tenant shall be paid to Landlord as Additional
Rent immediately upon receipt thereof by Tenant. If only a part of the
Demised Premises is sublet then the rent paid therefor by Tenant to
Landlord shall be deemed to be that fraction thereof that the area of said
sublet space or assigned lease bears to the entire Demised Premises;
(9) There shall be no material default by Tenant under any of
other terms, covenants and conditions of this Lease, after notice and
applicable grace periods, at the time that Landlord's consent to any such
subletting or assignment is requested and on the date of the commencement
of the term of any such proposed sublease or effective date of the
proposed assignment; and
(10) The sublease shall provide by its terms that it may not
be further modified in any material manner (including, without limitation,
modification of the financial obligations, identity or character of the
subtenant), without Landlord's consent, it being expressly agreed that any
such modification shall, for the purposes of this Lease, be deemed and
construed as a subletting for which Tenant must comply with this Article 9
as if such sublease had not been theretofore consented to by Landlord.
(11) The sublease shall provide that the subtenant shall, at
Landlord's option, attorn to upon any termination of this Lease.
(12) Intentionally Deleted.
C. No assignment of this Lease shall be binding upon Landlord
unless, in addition to compliance with the prior provisions of this Article 9,
the assignee shall execute, acknowledge and deliver to Landlord (a) a duplicate
original instrument of assignment in form and substance reasonably satisfactory
to Landlord, duly executed by Tenant, and (b) an agreement, in form and
substance reasonably satisfactory to Landlord, duly executed by the assignee,
whereby the assignee shall unconditionally assume observance and performance of,
and agree to be bound by all of the terms, covenants and conditions of this
Lease on Tenant's part to be observed or performed, including, without
limitation, the provisions of this Article 9 with respect to all future
assignments and subletting; but the failure or refusal of the assignee to
execute or deliver such an agreement shall not release the assignee from its
liability for the obligations of Tenant hereunder assumed by acceptance of the
assignment of this Lease.
D. If this Lease be assigned, whether or not in violation of the
terms of this Lease, Landlord may collect rent from the assignee. If the Demised
Premises or any part thereof be sublet or be used or occupied by anybody other
than Tenant, whether or not in violation of this Lease, Landlord may, after
default by Tenant, required notice and expiration of Tenant's time to cure such
default, if any, collect rent from the subtenant or occupant. In either event,
Landlord may apply the net amount collected to the rent herein reserved, but no
such assignment, subletting, occupancy or collection shall be deemed a waiver of
any provisions of this Article 9, or the acceptance of the assignee, subtenant
or occupant as a tenant, or a release of Tenant from the further performance by
Tenant of Tenant's obligations under this Lease, including the obligation to pay
all Base Rent and Additional Rent. The consent by
- 15 -
<PAGE>
Landlord to an assignment, transfer, encumbering or subletting pursuant to any
provision of this Lease shall not in any way be considered to relieve Tenant
from obtaining the express prior consent of Landlord to any other or further
assignment, transfer, encumbering or subletting. References in this Lease to use
or occupancy by anyone other than Tenant shall not be construed as limited to
and those claiming under or through but as including also licensees and others
claiming under Tenant, immediately or remotely. The listing of any name other
than that of Tenant on any door of the Demised Premises or on any directory or
in any elevator in the Building, or otherwise, shall not operate to vest in the
person so named any right or interest in this Lease or the Demised Premises, or
be deemed to constitute, or serve as a substitute for, any consent of Landlord
required under this Article 9, and it is understood that any such listing shall
constitute a privilege extended by Landlord, revocable at Landlord's will by
notice to Tenant. Tenant agrees to pay to Landlord all reasonable out-of-pocket
cost that may be incurred by Landlord in connection with any proposed assignment
of this Lease or any proposed subletting of the Demised Premises or any part
thereof including the costs of making investigations as to the acceptability of
a proposed subtenant or assignee and reasonable attorneys' fees. Neither any
assignment of this Lease nor any subletting, occupancy or use of the Demised
Premises or any part thereof by any person other than Tenant, nor any collection
of rent by Landlord from any person other than Tenant, nor any application of
any such rent as provided in this Article shall, under any circumstances except
as set forth in Section B of this Article, relieve, impair, release or discharge
Tenant of its obligations fully to perform the terms of this Lease on Tenant's
part to be performed.
9.2 Notwithstanding the foregoing, without Landlord's consent, but
upon ten (10) days' written notice to Landlord, this Lease may be assigned, or
the Premises may be sublet, to any corporation which is a parent, subsidiary or
affiliate of Tenant, or an entity which is controlled by, controls, or is under
common control with Tenant. For the purposes of this Section 9, "control" shall
mean having fifty-one percent (51%) or more of the voting interests.
9.3 For the purposes of this Lease, an "assignment" prohibited by
this Section 9 shall be deemed to include the following: if Tenant is a
partnership, a withdrawal or change (voluntary, involuntary, by operation of
law) of any one or more of the partners thereof, if such withdrawal represents
fifty percent (50%) or more of the partners in the partnership as then
constituted, or the dissolution of the partnership; or, if Tenant consists of
more that one person, a purported assignment, transfer, mortgage of encumbrance
(voluntary, involuntary, by operation of law or otherwise) from one thereof to
the other or other thereof, or to any third party; or, if Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization of
Tenant, or any change in the ownership (voluntary, involuntary, by operation of
law, creation of new stock or otherwise) of fifty percent (50%) or more of its
capital stock from the ownership existing on the date of execution hereof, or,
the sale of fifty percent (50%) of the value of the assets of Tenant.
Notwithstanding anything to the contrary contained in this Lease, Tenant may
assign this Lease or sublet a portion of the Demised Premises without Landlord's
consent (but on not less than ten [10] day's prior notice to Landlord and
provided written documentation evidencing same is provided to Landlord) to an
affiliate, subsidiary or parent of Tenant, a company into or with which Tenant
is merged or consolidated or to a company which purchases all or substantially
all of Tenant's assets. For purposes hereof: (i) an affiliate of Tenant shall
mean any entity which controls, is directly controlled by or is under common
control with Tenant ("Control" being interpreted as the ownership of fifty-one
percent (51%) or more of the interests in such entity and possession of the
power to direct the management and policies of such entity and the distribution
of its profits); (ii) a subsidiary of Tenant shall mean an entity which is
controlled by Tenant; (iii) a parent of Tenant shall mean an entity which has
ownership of fifty-one percent (51%) or more of the interests of Tenant and
possession of the power to direct the management and policies of Tenant and the
distributions of Tenant's profits; (iv) an entity in which or with which Tenant
is merged or consolidated shall mean an entity subject to the jurisdiction of
the courts of the State of New Jersey which succeeds Tenant in accordance with
applicable statutory provisions for merger or consolidation of entities and
which, by operation of law or by effective provisions contained in the
instruments or merger or consolidation fully assumes the liabilities of the
entities participating in such merger or consolidation and which has, on the
completion of such merger or consolidation, a net worth equal to or greater than
Tenant's net worth immediately prior to such merger or consolidation; and (v) an
entity which purchases all or substantially all of Tenant's assets shall mean an
entity which: (A) is unrelated to Tenant or any affiliate, subsidiary or parent
of Tenant; (B) is subject to the jurisdiction of the courts of the State of New
Jersey; (C) fully assumes the liabilities and the obligations of Tenant under
this Lease; (D) purchases such assets pursuant to a bona fide, arm's length sale
that is not consummated for the purpose of circumventing the restrictions set
forth in this Article; and (E) has, on the completion of such sale, a net worth
equal to or greater than Tenant's net worth immediately prior to such sale.
Furthermore, Landlord agrees that (i) Article 9B(8) or 9.4.1 shall not be
applicable to any permitted subletting/assignment and (ii) Landlord shall not be
allowed to avail itself of any recapture rights pursuant
- 16 -
<PAGE>
to any assignment allowable under this Article 9.3. In connection with this
Article, Landlord shall have the right, at any reasonable time and from time to
time, to examine such books and records of Tenant as may be necessary to
establish that such entity, subtenant, occupant or assignee remains a
related/affiliated entity of Tenant and that no rent is being paid to Tenant by
such related entity. Such subletting, occupancy or assignment shall not be
deemed to vest in any such related entity any right or interest in this Lease or
the Demised Premises, nor shall it relieve, release, impair or discharge any of
Tenant's obligations hereunder. In addition, notwithstanding the foregoing, a
transfer of control of the Tenant to any corporation whose securities are traded
on a public securities exchange or the redemption or issuance of additional
stock of any class shall not be deemed to be an assignment of this Lease,
however, written notice must be given to Landlord on or prior to the date
thereof.
9.4 If Landlord gives its consent to any assignment of this Lease,
or if Tenant is otherwise permitted to make any assignment pursuant to this
Lease (except as provided in Section 9.3 above), Tenant shall in consideration
therefore, pay to Landlord, as Additional Rent:
9.4.1 For an assignment, an amount equal to one-half (1/2) of all
sums and consideration paid to Tenant by the assignee for or by reason of such
assignment (including any sums paid for the sale, rental, or use of Tenant's
Property in excess of the then fair market value of Tenant's Property but
excluding any sums paid for the sale, rental, or use Tenant's telecommunications
equipment) less the reasonable brokerage commissions and legal and accounting
fees, fix-up costs and free rent concessions, if any, actually paid by Tenant in
connection with such assignment; and
The sums payable under this Subsection 9.4 shall be paid to Landlord as
and when payable by the assignee or subtenant to Tenant.
9.5 In no event shall Tenant be entitled to make, nor shall Tenant
make, any claim, and Tenant hereby waives any claim, for money damages (nor
shall Tenant claim any money damages by way of set-off, counter claim or
defense) based upon any claim or assertion by Tenant that Landlord has
unreasonably withheld or unreasonably delayed its consent or approval to a
proposed assignment or subletting as provided for in this Article, unless
Landlord's failure to consent or approve same is due to Landlord's bad faith or
willful misconduct. Tenant's sole remedy shall be an action or proceeding to
enforce any such provision, or for specific performance, injunction or
declaratory judgment.
9.6 (I) Every subletting hereunder is subject to the express
condition, and by accepting a sublease hereunder each
subtenant shall be conclusively deemed to have agreed,
that if this Lease should be terminated prior to the
Expiration Date or if Landlord should succeed to
Tenants estate in the Demised Premises, then at
Landlord's election such subtenant shall either
surrender the Demised Premises to Landlord within
thirty (30) of Landlord's request therefore, or shall
attorn to and recognize Landlord as such subtenant's
Landlord under such sublease, and such subtenant shall
promptly execute and deliver any instrument Landlord
may reasonably request to evidence such attornment.
(II) In the event that Tenant fails to execute and deliver
any assignment or sublease to which Landlord consented
under the provisions of this Article within forty-five
(45) days after the giving of such consent, then Tenant
shall again comply with all of the provisions of this
Article before assigning its interest in this Lease or
subletting the Demised Premises.
10. Indemnity. Landlord shall not be liable for and Tenant will indemnify
and save harmless Landlord of and from all fines, suits, demands, losses and
actions (including attorneys' fees) for any injury to person or damage to or
loss of property on or about the Premises caused in whole or in part by the
negligence or misconduct of, or breach of the Lease by Tenant, its employees,
subtenants, invitees or by any other person entering the Premises, the Building,
or the Project under express or implied invitation of Tenant, or arising out of
Tenant's use of the Premises, except to the extent caused by the negligence or
willful misconduct of Landlord. Landlord shall not be liable or responsible for
any loss or damage to any property or death or injury to any person occasioned
by theft, fire, act of God, public enemy,
- 17 -
<PAGE>
criminal conduct of third parties, injunction, riot, strike, insurrection, war,
court order, requisition of other governmental body or authority, by other
tenants of the Building or any other matter, or for any injury or damage or
inconvenience which may arise through repair or alteration of any part of the
Building, or failure to make repairs, or from any cause whatever except
Landlord's willful misconduct or negligence.
11. Subordination and Mortgagee's Right to Cure Landlord's Defaults. This
Lease and all rights of Tenant hereunder are subject and subordinate to any
deeds to secure debt, mortgages or any other instruments of security, as well as
to any ground leases, that now or hereafter cover all or any part of the
Building, the land situated beneath the Building or any interest of Landlord
therein, and to any and all advances made on the security thereof, and to any
and all increases, renewals, modifications, consolidations, replacements and
extensions of any such instruments. This provision shall be self-operative and
no further instrument shall be required to effect such subordination of this
Lease. Tenant shall, however upon demand execute, acknowledge and deliver to
Landlord any and all instruments and certificates that in the judgment of
Landlord may be necessary or proper to confirm or evidence such subordination.
Notwithstanding the generality of the foregoing provisions of this Section,
Tenant agrees that any such mortgagee shall have the right at any time to
subordinate any such instruments to this Lease on such terms and subject to such
conditions as such mortgagee may deem appropriate.
Tenant further covenants and agrees upon demand by Landlord's
mortgagee at any time, before or after the institution of any proceedings for
the foreclosure of any such instruments, or sale of the Building pursuant to any
such instruments, to attorn to such purchaser upon any such sale and to
recognize such purchaser as Landlord under this Lease. The agreement of Tenant
to attorn upon demand of Landlord's mortgagee contained in the immediately
preceding sentence shall survive any such foreclosure sale. Tenant shall upon
demand at any time or times before or after any such foreclosure sale, execute,
acknowledge and deliver to Landlord's mortgagee any and all instruments and
certificates that in the judgment of Landlord's mortgagee may be necessary or
proper to confirm or evidence such attornment. Tenant hereby irrevocably
appoints Landlord's mortgagee as Tenant's agent and attorney-in-fact for the
purpose of executing, acknowledging and delivering any such instruments and
certificates.
Landlord will request from the future mortgagee(s) or superior
lessors of the Building that it (and Landlord will use reasonable efforts to
have said mortgagee[s]) execute and deliver to Tenant a document wherein it is
agreed that, provided Tenant is not in default under any of the terms,
conditions and/or provisions of this Lease, beyond any applicable grace period,
neither Tenant's possession of the Demised Premise nor its rights under this
Lease shall be disturbed. Landlord shall provide a copy of said request to
Tenant. Tenant acknowledges and agrees that (i) it shall reimburse Landlord, on
demand, for all of Landlord's reasonable costs (including, without limitation,
all reasonable legal fees and disbursements) connected in any way with
Landlord's above-mentioned request to the mortgagee(s) of the Building, (ii) no
representations, warranties or promises have been made to Tenant that the
mortgagee(s) of the Building will execute such a document, (iii) neither this
Lease nor compliance by Tenant with any of its terms, conditions and/or
provisions are conditioned, in any manner whatsoever, on (x) the execution or
non-execution of such a document, or (y) the issue of whether Landlord used
reasonable efforts to have said mortgagee(s) execute such a document and (iv)
Tenant shall have no rights or remedies whatsoever against anyone or thing in
the event the mortgagee(s) of the Building does not execute such a document.
Notwithstanding anything to the contrary contained in the foregoing,
Landlord represents that it shall, if it has not done so on or prior to the
delivery of a fully executed Lease to Tenant, deliver to Tenant a
Non-Disturbance Agreement from the current holder(s) of all mortgages and all
superior leases on the Premises ("NDA"). Furthermore, if Landlord does not
deliver the NDA within sixty (60) days of the Commencement Date #2 (unless due
to the fault of the Tenant), Tenant shall have the right to cancel this Lease
within fifteen (15) business days (time being of the essence) after the
expiration of said sixty (60) days, provided (i) Tenant gives written notice to
Landlord of its intention to cancel this Lease (the "NDA" Termination Notice")
within said fifteen (15) business day period and (ii) Landlord thereafter fails
to deliver the NDA within fifteen (15) business days of Landlord's receipt of
the NDA Termination Notice. Tenant acknowledges and agrees that it shall
reimburse Landlord, on demand, for all of Landlord's reasonable costs
(including, without limitation, all reasonable legal fees and disbursements)
connected in any way with Landlord's above-mentioned request to the mortgagee(s)
of the Building.
- 18 -
<PAGE>
12. Rules and Regulations. Provided that the rules and regulations set
forth as Exhibit C are applied uniformly to all tenants in the Building, Tenant
and Tenant's agents, employees and invitees will comply with all the rules and
regulations of the Building which are attached hereto as Exhibit "C" and
incorporated herein by reference. Landlord in its sole judgement shall have the
right to change such rules and regulations or to promulgate other rules and
regulations in a manner deemed advisable for safety, care, or cleanliness of the
Building and related facilities or premises, and for preservation of good order
therein, all of which rules and regulations, changes and amendments will be
applied uniformly to all tenants in the Building and will be forwarded to Tenant
in writing and shall be carried out and observed by Tenant. Tenant shall further
be responsible for the compliance with such rules and regulations by the
employees, servants, agents, visitors and invitees of Tenant. Notwithstanding
the foregoing, in the event there is any conflict between the provisions of this
Lease and the Rules and regulations, the provisions of this Lease shall control.
13. Inspection. Landlord or its officers, agents, and representatives
shall have the right to enter into and upon any and all parts of the Premises at
all reasonable hours (or, in any emergency, at any hour) to (a) inspect same or
clean or make repairs or alterations or additions as Landlord may deem
necessary, including but not limited to the installment of new windows (but
without any obligation to do so, except as expressly provided for herein) or (b)
show the Premises to prospective tenants within the last six (6) months of the
Lease Term or any extension thereof, purchasers or lenders; and Tenant shall not
be entitled to any abatement or reduction of Rent by reason thereof, nor shall
such be deemed to be an actual or constructive eviction. Notwithstanding
anything to the contrary contained in this Lease, except in the event of an
emergency or where such entry is required by law, Landlord's right of entry
shall be exercised following reasonable advance notice to Tenant. Landlord
agrees that while exercising such right of entry or making such repairs,
replacements or improvements, Landlord shall perform its work diligently and
shall use best efforts to avoid materially interfering with Tenant's business or
disrupting same, but in no event shall Landlord be required to incur overtime
charges for same.
14. Condemnation. If the Premises, or any part thereof, or if the Building
or any portion of the Building, leaving the remainder of the Building unsuitable
for use as an office building comparable to its use on Commencement Date #1 or
Commencement Date #2 of this Lease, shall be taken or condemned in whole or in
part for public purposes, or sold in lieu of condemnation, then the Lease Term
shall, at the sole option of Landlord, forthwith cease and terminate. All
compensation awarded for any taking (or sale proceeds in lieu thereof) shall be
the property of Landlord, and Tenant shall have no claim thereto, the same being
hereby expressly waived by Tenant. Notwithstanding anything contained in this
Lease to the contrary, Tenant shall be entitled to claim, prove, and receive in
condemnation proceedings or other proceedings in the event of a conveyance in
lieu of condemnation, damages for relocation costs, improvements, fixtures and
other equipment installed by Tenant, together with any award for loss of
business or leasehold interest paid for by Tenant.
15. Casualty. In the event the Demised Premises or the Building are
totally damaged or are rendered wholly untenantable by fire or other casualty,
Landlord may, as provided for hereinafter, give Tenant written notice of
Landlord's election to terminate this Lease, and thereupon the term of this
Lease, shall expire by lapse of time upon the tenth (10th) day after such notice
is given, and Tenant shall vacate the Demised Premises and surrender the same to
Landlord. If Tenant shall not be in monetary or material nonmonetary default
under this Lease after the expiration of any applicable cure period, then upon
the termination of this Lease under the conditions provided for hereinafter,
Tenant's liability for Rent accruing subsequent to the fire or casualty shall
cease and be apportioned as of the day following such fire or casualty.
Notwithstanding anything to the contrary contained in this Lease, Landlord
shall, within the earlier of (a) one hundred twenty (120) days from the fire or
casualty or (b) thirty (30) business days after Landlord receives written notice
from its insurance carrier regarding the extent of insurance proceeds Landlord
will receive to restore the Building and/or the Demised Premises (as is required
under this Lease), give Tenant written notice of it's intention to either (i)
restore or rebuild the Demised Premises in character, layout and area
substantially equal to the Premises damaged or destroyed immediately prior to
such damage or destruction (except Landlord shall not be required to rebuild,
repair or replace any part of the furniture, equipment, fixtures and other
improvements which may have been placed by Tenant [or by Landlord on behalf of
Tenant (e.g., any improvement to Exhibit "E" hereinafter)] in the Premises)
within two hundred ten (210) days from the date of such fire or other casualty
(but such two hundred ten [210] day period shall be subject to reasonable
extensions and delays resulting from acts of God, fire, strikes, lockouts, labor
trouble, inability to procure materials by reason of governmental restrictions,
riots, insurrection, war or other causes beyond the reasonable control of
Landlord), or (ii) terminate this Lease ("Casualty Notice").
- 19 -
<PAGE>
Notwithstanding anything to the contrary contained in this Lease, Tenant shall
have the option to cancel this Lease, in the event (i) the casualty occurs
during the last year of the Lease term, (ii) the casualty occurs at any time
and, in both Landlord's and Tenant's reasonable opinion, the restoration will
take over three hundred sixty (360) days from said occurrence or (iii) the
Casualty Notice informs Tenant that Landlord's restoration will take over two
hundred forty (240) days to restore from the date of the casualty or damage. It
is agreed that if Landlord elects to restore or rebuild as provided for above,
this Lease shall continue in full force and effect, but the Rent and all other
obligations of Tenant shall abate as of the date of such fire or other casualty
(except as otherwise provided for above) until the Demised Premises shall have
been restored or rebuilt by Landlord (as provided for above) and possession
thereof shall have been delivered to Tenant. If Landlord does not give Tenant
notice of its election to terminate the Lease within the period required under
this Article 15, then Tenant shall have the right (provided Tenant is not in
default under the Lease beyond any applicable notice and cure period and Tenant
cannot conduct its business operations within the Premises) to elect to
immediately cancel this Lease by giving written notice to Landlord, provided
Tenant notifies Landlord in writing that "Landlord failed to cancel this Lease
within the required time period of Article 15 and that Landlord's subsequent
failure to void Tenant's notice of termination of the Lease within five (5)
business days of Landlord's receipt of this correspondence shall be deemed
Landlord's acceptance of Tenant's termination of this Lease". A copy of such
notice must be simultaneously sent to Landlord's counsel (or such other parties
as Landlord may from time to time designate) in accordance with the notice
provisions of this Lease in order for such request to be deemed effective. If
any part of the Demised Premises is damaged or destroyed by fire or other
casualty or accident (unless the damage or casualty was caused by Tenant), the
Base Rent and Additional Rent shall be abated proportionately until the Demised
Premises are restored in the manner required of Landlord, taking into account
the proportion of the Demised Premises rendered untenantable. If any mortgagee
under a deed to secure debt, security agreement or mortgage requires the
insurance proceeds be applied against the mortgage debt, Landlord shall have no
obligation to rebuild and this Lease shall terminate upon notice to Tenant;
provided, however, that Landlord shall notify Tenant, within thirty (30) days
after any such mortgagee gives a notice to Landlord of such election to apply
such proceeds against the mortgage debt, of the fact that such mortgagee has
done so. Except as hereinafter provided, any insurance which may be carried by
Landlord or Tenant against loss or damage to the Building or to the Premises
shall be for the sole benefit of the party carrying such insurance and under its
sole control. Tenant hereby waives the provisions of any applicable law and
agrees that the provisions of this Section 15 shall control in lieu thereof.
Furthermore, if Landlord does not repair the damage from the casualty
within the aforesaid period required under this subparagraph, then Tenant shall
have the right (provided Tenant is not in default under the Lease beyond any
applicable notice and cure period and Tenant cannot conduct its business
operations within the Premises) to elect to cancel this Lease by giving written
notice to Landlord, provided Tenant notifies Landlord in writing that "Landlord
failed to cancel this Lease within the required time period of Article 15 and
that Landlord's subsequent failure to void Tenant's notice of termination of the
Lease within thirty (30) business days of Landlord's receipt of this
correspondence shall be deemed Landlord's acceptance of Tenant's termination of
this Lease". Accordingly, Landlord can only void Tenant's termination notice by
delivery of the Premises in the condition required under this Article 15 within
thirty (30) business days of Landlord's receipt of the termination notice.
In the event the Demised Premises are partially [e.g., less than ten
percent (10%) of the Demised Premises] damaged or are rendered partially [e.g.,
less than ten percent (10%) of the Demised Premises untenantable by fire or
other casualty, Landlord shall within one hundred eighty (180) days from the
fire or casualty repair the area the of the Demised Premises damaged in a manner
substantially equal to the Premises damaged or destroyed immediately prior to
such damage or destruction (except Landlord shall not be required to rebuild,
repair or replace any party of the furniture, equipment, fixtures and other
improvements which may have been placed by Tenant [or Landlord on behalf of
Tenant] in the Premises. Such one hundred eighty (180) day period shall be
subject to reasonable extensions and delays resulting from acts of God, fire,
strikes, lockouts, labor trouble, inability to procure materials by reason of
governmental restrictions, riots, insurrection, war or other causes beyond the
reasonable control of Landlord. If Landlord does not repair the damage from the
casualty within the aforesaid period required under this subparagraph, then
Tenant shall have the right (provided Tenant is not in default under the Lease
beyond any applicable notice and cure period and Tenant cannot conduct its
business operations within the Premises) to elect to cancel this Lease by giving
written notice to Landlord, provided Tenant notifies Landlord in writing that
"Landlord failed to cancel this Lease within the required time period of Article
15 and that Landlord's subsequent failure to void Tenant's notice of termination
- 20 -
<PAGE>
of the Lease within thirty (30) business days of Landlord's receipt of this
correspondence shall be deemed Landlord's acceptance of Tenant's termination of
this Lease". Accordingly, Landlord can only void Tenant's termination notice by
delivery of the Premises in the condition required under this Article 15 within
thirty (30) business days of Landlord's receipt of the termination notice. A
copy of such notice must be simultaneously sent to Landlord's counsel (or such
other parties as Landlord may from time to time designate) in accordance with
the notice provisions of this Lease in order for such request to be deemed
effective.
16. Holding Over.
(a) Intentionally Deleted.
(b) If Tenant holds over its possession after the expiration or
sooner termination of the original term or of any extended
term of this Lease, such holding over shall not be deemed to
extend the term or renew the Lease (e.g., such holding over
shall constitute a tenancy at will and shall not be construed
as Landlord's consent for Tenant to hold over), but such
holding over thereafter shall continue upon the covenants and
conditions herein set forth, except that the charge for use
and occupancy of such holding over for each calendar month or
part thereof (even if such part shall be a small fraction of a
calendar month) shall be the sum of (unless Landlord and
Tenant are then currently in good faith negotiations for a
renewal of the term of this Lease, the multiplier shall be
100%):
i) 1/12 of the highest annual rent rate set forth in
Article 1.8 of this Lease, times one hundred fifty
percent (150%), plus
ii) 1/12 of the net increase, if any, in annual fixed rental
due solely to increases in the cost of the value of
electric service furnished to the premises in effect on
the last day of the term of the Lease, plus
iii) 1/12 of all other items of annual additional rental,
which annual additional rental would have been payable
pursuant to this Lease had this Lease not expired, plus
iv) those other items of Additional Rent (not annual
additional rent) which would have been payable monthly
pursuant to this Lease, had this Lease not expired,
which total sum Tenant agrees to pay to Landlord promptly upon
demand, in full, without set-off or deduction. Neither the billing
nor the collection of use and occupancy of the above amount shall be
deemed a waiver of any right of Landlord to collect damages for
Tenant's failure to vacate the Demised Premises after the expiration
or sooner termination of this Lease. The aforesaid provisions of
this Article shall survive the expiration or sooner termination of
this Lease.
17. Taxes on Tenant's Property. Tenant shall be liable for all taxes
levied or assessed against personal property, furniture or fixtures placed by
Tenant in the Premises (herein called "Tenant's Property"). If any such taxes
for which Tenant is liable are levied or assessed against Landlord or Landlord's
property and if Landlord elects to pay the same or if the assessed value of
Landlord's property is increased by inclusion of personal property, furniture or
fixtures placed by Tenant in the Premises, and Landlord elects to pay the taxes
based on such increase, Tenant shall pay to Landlord upon demand that part of
such taxes for which Tenant is primarily liable hereunder.
18. Events of Default. The following shall be events of default by Tenant
("Event of Default") under this Lease (except with regard to Articles 18.2 and
18.7, it shall only be an Event of Default after Tenant has received fifteen
(15) days written notice of said default [unless said default is not reasonably
capable of cure within said period, Tenant must undertake with all diligence,
all necessary steps to cure same within said fifteen (15) days and thereafter
continue to diligently pursue said cure to completion] and the aforesaid default
has not been cured within the applicable cure period):
- 21 -
<PAGE>
18.1 Tenant shall fail to pay when due any Base Rent payable by
Tenant hereunder (or under any other lease now or hereafter executed by Tenant
in connection with the Building). Notwithstanding the foregoing, with regard to
Article 18.1, Landlord shall provide Tenant with written notice of such default
and Tenant shall have ten (10) days after receipt of such notice of default to
cure such default, provided, however, Landlord shall only be obligated to
provide notice of a default under Article 18.1 two (2) times in any twelve (12)
month period. If Tenant shall fail to pay when due any other sums payable by
Tenant hereunder, including Additional Rent, Landlord shall provide Tenant with
written notice of such default and Tenant shall have ten (10) days after receipt
of such notice of default to cure such default.
18.2 Tenant shall fail to comply with or observe any other provision
of this Lease.
18.3 Tenant or any guarantor of Tenant's obligations hereunder shall
make an assignment for the benefit of creditors.
18.4 Any voluntary or involuntary petition shall be filed by or
against Tenant or any guarantor of Tenant's obligations hereunder under any
section or chapter of the Federal Bankruptcy Act, as amended from time to time,
or under any similar law or statute of the United States or any State thereof;
or Tenant or any guarantor of Tenant's obligations hereunder shall be adjudged
bankrupt or insolvent in proceedings filed thereunder. Notwithstanding the
foregoing, the filing of an involuntary petition in bankruptcy shall not
constitute an Event of Default, so long as the Tenant has moved within sixty
(60) days after such filing to dismiss such involuntary petition, and further
provided that such application is thereafter granted by the United States
bankruptcy court.
18.5 A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any guarantor of Tenant's
obligations hereunder.
18.6 Tenant shall desert or vacate the Premises, without continuing
payments of Base Rent and Additional Rent in accordance with the terms of this
Lease.
18.7 Any writ of execution, attachment, or garnishment shall be
levied against any interest of Tenant in this Lease, the Premises, or any
property located in the Premises.
19. Remedies. If there is an Event of Default by Tenant under this Lease,
then without any notice or demand to Tenant whatsoever (other than that already
given to Tenant under Article 18 hereinabove, where applicable), Landlord shall
have the right (but not any duty) to exercise, on a cumulative basis (but
without duplication of any costs or damages recoverable by Landlord, any or all
of the following remedies:
19.1 Landlord may continue this Lease in full force and effect, and
proceed to collect all Rent when due.
19.2 Without prejudice to any other remedy which Landlord may have,
Landlord may continue this Lease in full force and effect and may enter the
Premises under full and free license from Tenant, to expel or remove Tenant and
any others who may be occupying or within the Premises, to remove any and all
property therefrom, using such force as may be legally permissible, without
being deemed in any manner guilty of trespass, eviction, forcible entry or
detainer and relet all or any portion thereof to other parties for Tenant's
account. Landlord shall not unreasonably refuse any proposed new tenant offered
by Tenant. Tenant shall pay to Landlord on demand all reasonable costs Landlord
incurs in entering the Premises and reletting them, including, without
limitation, brokers' commissions, expenses of repairs and remodeling, reasonable
attorneys' fees, and all other actual costs. Reletting may be for a period
shorter or longer than the remaining term of this Lease. During the term of any
reletting, Tenant shall pay to Landlord the Rent due under this Lease on the
dates due, less any net rents Landlord receives from any reletting.
- 22 -
<PAGE>
19.3 Provided Landlord has given any notice required (if any) under
Article 18 of this Lease, Landlord may terminate Tenant's rights under this
Lease at any time by serving a written five (5) day notice of termination
("Notice of Termination"), which Notice of Termination shall not be effective
until five (5) days after Tenant's receipt or rejection thereof. Landlord shall
have the right to recover from Tenant all reasonable costs, expenses, losses and
damages caused by, resulting from or incurred in connection with said default
and/or termination including, but not limited to:
19.3.1 An amount equal to all unpaid Rent that had accrued
prior to the time of termination of this Lease;
19.3.2 An amount equal to (a) the amount of Rent that would
have accrued under this Lease between (i) the date of termination of
this Lease, and (ii) the date the calculation is made under this
Subsection 19.3.2 if this Lease had not been so terminated; less (b)
any net amounts of rent actually received by Landlord with respect
to such time period; plus
19.3.3 Intentionally Deleted.
19.3.4 An amount equal to (a) all actual costs and expenses,
including but not limited to reasonable attorneys' fees, that have
been incurred by Landlord prior to the date the calculation of said
amounts is made.
19.4 Landlord may send Tenant a written three (3) day notice from
Landlord informing Tenant that three (3) days from Tenant's receipt or rejection
thereof, without showing of need or the presence of any statutory or common law
grounds, all of which requirements are hereby expressly waived, Landlord may
have a receiver appointed to take possession of and relet the Premises, in
accordance with Subsection 19.2. Tenant shall pay to Landlord on demand all
costs Landlord incurs in connection therewith.
19.5 Unless a shorter time period is provided for in any other
Article of this Lease, Landlord may cure any default at Tenant's cost after five
(5) days prior written notice to Tenant. If Landlord at any time, by reason of
Tenant's default, pays any sum to cure any default, the sum so paid by Landlord
shall be immediately due from Tenant to Landlord within thirty (30) days after
Tenant's receipt of Landlord's Statement, and shall bear interest at the Default
Rate from the date paid by Landlord until Landlord shall have been reimbursed by
Tenant. Said sum, together with interest thereon, shall be Additional Rent.
19.6 Landlord may apply all or part of the Security Deposit, as
provided in Section 3.4.
19.7 Landlord may exercise any or all other rights or remedies
available at law or equity, including, without limitation, the right to obtain
restraining orders, injunctions and decrees of specific performance.
19.8 Landlord may obtain an injunction by any court of competent
jurisdiction restraining any threatened breach or any continuing breach of any
of Tenant's covenants hereunder.
Any right granted in this Section 19 to Landlord in the event of a
default by Tenant hereunder shall apply to any extension or renewal of this
Lease. No act or thing done by Landlord or Landlord's employees or agents during
the Lease Term shall be deemed an acceptance of a surrender of the Premises. No
waiver by Landlord of any default of Tenant hereunder shall be implied from any
inaction by Landlord on account of such default if such default persists or is
repeated, and no express waiver shall affect any default other than the default
specified in the express waiver and then only for the time and to the extent
therein stated. The receipt by Landlord of Rent with knowledge of the breach of
any covenant of Tenant contained in this Lease shall not be deemed a waiver of
such breach. If on the Lease Commencement Date #1 or thereafter during the Lease
Term, Tenant shall be in default in the payment of rent to Landlord pursuant to
the terms of any other lease(s) with Landlord or with Landlord's predecessor in
interest, Landlord may, at Landlord's option and without notice to Tenant, add
the amount of such arrearages to any monthly
- 23 -
<PAGE>
installment of Base Rent or Additional Rent payable hereunder and the same shall
be payable to Landlord as Additional Rent.
20. Attorneys' Fees. Tenant hereby agrees to pay, as Additional Rent, all
reasonable attorneys fees and disbursements (and all other court costs or
expenses of legal proceedings) which Landlord may incur or pay out by reason of,
or in connection with:
A. any action or proceeding by Landlord to terminate this Lease (if
Landlord is successful in its action);
B. any other action or proceeding by Landlord against Tenant
(including, but not limited to, any arbitration proceeding), if
Landlord is successful in its action;
C. any default by Tenant in the observance or performance of any
obligation under this Lease (including, but not limited to, matters
involving: payment of Rent and Additional Rent; computation of
escalations; alterations or other Tenant's work; and subletting or
assignment), after the expiration of any applicable notice and cure
periods, whether or not Landlord commences any action or proceeding
against Tenant; and
D. any action or proceeding brought by Tenant against Landlord (or any
officer, partner, or employee of Landlord) in which Landlord is
successful.
Notwithstanding anything to the contrary contained in this Article, if
Landlord is in default under this Lease beyond the applicable written
notice and/or grace period, and the Tenant commences legal proceedings
with regard thereto, the Landlord shall pay to Tenant (if Tenant is
successful in it's action), within ten (10) days of the order of the
appropriate court, all of such non-defaulting party's reasonable and
actual attorneys' fees and disbursements and court costs or expenses of
such legal proceeding.
Tenant's and Landlord's obligations under this Paragraph 20 shall survive
the expiration of the term hereof or any other termination of this Lease.
This Paragraph is intended to supplements (and not to limit) other
provisions of this Lease pertaining to indemnities and/or attorney's fees.
21. Security Interest. Intentionally Deleted.
22. Liens. Tenant will not permit any lien to be placed upon the Premises,
the Building or any improvements thereon during the Lease Term caused by or
resulting from any work performed, materials furnished or obligation incurred by
or at the request of Tenant. All persons contracting with Tenant for the
construction and installation of improvements to or alteration or repair of the
Premises and all materialmen, contractors, mechanics and laborers are hereby
charged with notice that they must look to Tenant's interest in the Premises
only to secure payment of any bill for work done or materials furnished during
the Lease Term. In the case of the filing of any such lien, Tenant will promptly
pay or otherwise discharge the same. If default in payment or discharge thereof
shall continue for twenty (20) days after notice thereto from Landlord to
Tenant, Landlord shall have the right at Landlord's option of paying the same
without inquiry as to the validity thereof, and any amounts so paid, including
expenses and interest, shall be so much Additional Rent hereunder due from
Tenant to Landlord and shall be repaid to Landlord immediately on demand.
23. Waiver of Subrogation. In the event the Premises or its contents are
damaged or destroyed by fire or other insured casualty, (i) Landlord, to the
extent of the coverage of Landlord's policies of fire insurance, hereby waives
its rights, if any, against Tenant with respect to such damage or destruction,
even if said fire or other casualty shall have been caused, in whole or in part,
by the negligence of Tenant, and (ii) Tenant, to the extent of the coverage of
Tenant's policies of fire insurance with extended coverage, hereby waives its
rights, if any, against Landlord with respect to such damage, or destruction,
even if said fire or other casualty shall have been caused, in whole or in part,
by the negligence of Landlord; provided, however, such waivers of subrogation
shall only be effective with respect to loss or damage occurring during such
time as Landlord's or Tenant's policies of fire insurance (as the case may be)
shall contain a clause or endorsement providing in substance that the aforesaid
waiver of subrogation shall not prejudice the type and amount of coverage under
such policies or the right of Landlord or Tenant (as the case may
- 24 -
<PAGE>
be) to recover thereunder. If, at any time, Landlord's or Tenant's insurance
carrier refuses to write insurance which contains a consent to the foregoing
waiver of subrogation, Landlord or Tenant, as the case may be, shall notify the
party thereof in writing, and upon the giving of such notice, the provisions of
this Section shall be null and void as to any casualty which occurs after such
notice. If Landlord's or Tenant's insurance carrier shall make a charge for the
incorporation of the aforesaid waiver of subrogation in its policies, then the
party requesting the waiver shall promptly pay such charge to the other party
upon demand. In the event the party requesting their waiver fails to pay such
charge upon demand, the other party shall be released of its obligation to
supply such waiver.
24. Tenant's Insurance. Tenant shall carry (at its sole expense during the
Term):
(i) all-risk property insurance, insuring Tenant's interest in its
improvements to the Premises and any and all furniture, fixtures,
equipment, supplies, inventory, contents and other property owned, leased,
held or possessed by Tenant and contained therein. Such insurance shall be
in an amount equal to the full replacement cost of such improvements and
property, as such may increase from time to time, without deduction for
depreciation, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended peril (all risk), boiler and machinery, flood, glass
breakage and sprinkler leakage, and naming Landlord as loss payee as its
interest may appear;
(ii) worker's compensation insurance required by applicable law; and
(iii) comprehensive or commercial general liability insurance on an
occurrence basis for injury to or death of a person or persons and for
damage to property occasioned by or arising out of any construction work
being done on the Premises, or arising out of the condition, use, or
occupancy of the Premises, or other portions of the Building or Property,
and covering Tenant's indemnification obligations imposed by Paragraph 15
of this Lease, the limits of such policy or policies to be in amounts not
less than Three Million and No/100 Dollars ($3,000,000.00) in primary
liability coverage and Two Million and No/100 Dollars ($2,000,000.00) in
excess liability coverage.
Landlord retains the right, in its sole discretion, to increase the
amount of insurance required to be carried by Tenant not more frequently than
annually based on such factors as inflation, Tenants insurance claims history,
the advice of Landlord's insurance advisors and any other relevant factors,
provided that all such standards are equally applied to all the tenants of the
Building. All said insurance policies shall be carried with companies licensed
to do business in the state in which the Premises are located reasonably
satisfactory to Landlord and shall be noncancellable except after thirty (30)
days written notice to Landlord. Each policy shall name Landlord, Landlord's
property manager and any other person designated by Landlord as additional
insureds and provide that it is primary to, and not contributing with, any
policy carried by Landlord, Landlord's property manager, or other designated
person covering the same loss. Tenant shall deliver duly executed certificates
of such insurance to Landlord prior to Commencement Date #1 and Commencement
Date #2 and at least thirty (30) days prior to the expiration of each respective
policy term. No insurance policy or policies required to be carried by Tenant
will be subject to more than a $50,000.00 deductible limit without Landlord's
prior written consent. If Tenant fails to take out or keep in force any
insurance required to be carried by Tenant, or to provide evidence of the same,
Landlord shall have the right, but shall not be obligated, to obtain such
insurance at the sole cost and expense of Tenant, and Tenant shall reimburse
Landlord for the cost thereof upon demand. If, due to the failure of Tenant to
comply with the foregoing provisions, Landlord is adjudged a co-insurer by its
insurance carrier, then any loss or damage Landlord shall sustain by reason
thereof shall be borne by Tenant and shall be immediately paid by Tenant upon
receipt of a bill therefor from Landlord and evidence of such loss. Landlord
makes no representation that the minimum limits of liability specified to be
carried by Tenant hereunder are adequate to protect Tenant. Landlord shall have
the right at any time and from time to time during the term of this Lease (but
not more then one [1] time in any calendar year and in no event [i] prior to the
third [3rd] anniversary of the Lease term and [ii] by not more than
$1,000,000.00 in the aggregate over the remainder of the Lease term) on not less
than thirty (30) days' notice to Tenant to require that Tenant increase the
amounts and/or types of coverage required to be maintained under this Article to
the amounts and/or types of coverage then required by Landlord of tenants
entering into new leases in the Building and are carried by similarly situated
tenants in comparable buildings. Landlord shall maintain during the term of this
Lease a policy or policies of insurance insuring the Building
- 25 -
<PAGE>
for not less than ninety-five percent (95%) of its replacement value against
loss or damage due to fire and other casualties covered within the
classification of fire and leakage, water damage and special extended coverage
on the building. Such policy or policies shall otherwise be of a nature carried
by owners of similar buildings located in the City of Newark, State of New
Jersey.
25. Brokerage. CRG REAL ESTATE SERVICES, LLC HAS REPRESENTED LANDLORD IN
THIS TRANSACTION ("CRG") AND EQUIS CORPORATION HAS REPRESENTED TENANT IN THIS
TRANSACTION ("EQUIS"). CRG AND EQUIS SHALL BE PAID A COMMISSION BY LANDLORD IN
CONNECTION WITH THIS LEASE PURSUANT TO SEPARATE AGREEMENTS. Landlord and Tenant
warrant to the other that it has had no dealings with any broker or agent in
connection with the negotiation or execution of this Lease other than with the
brokers specifically identified above, and Landlord and Tenant agree to
indemnify the other against all costs, expenses, attorneys' fees or other
liability for commissions or other compensation or charges claimed by any broker
or agent claiming the same by, through or under Tenant, other than with the
brokers specifically identified above.
26. Building Name. Without the prior written consent of Landlord, Tenant
shall not use the words "744 Broad Street" or the name of the Building for any
purposes other than as the address of the business to be conducted by Tenant in
the Premises. Landlord reserves the right to change the name or number by which
the Building or the Project is designated, provided Tenant is notified in
writing at least sixty (60) days prior thereto.
27. Estoppel Certificates. Tenant shall furnish from time to time when
requested by Landlord or the holder of any deed to secure debt or mortgage
covering the Building, the Premises, or any interest of Landlord therein, a
certificate signed by Tenant confirming and containing such certifications and
representations reasonably deemed appropriate by Landlord or the holder of any
deed to secure debt or mortgage covering the Building, the Premises or any
interest of Landlord therein, and Tenant shall, within ten (10) business days
following receipt of said certificate from Landlord, return a fully executed
copy of said certificate to Landlord. If Tenant fails to return a fully executed
copy of such certificate to Landlord within said period, Tenant shall have
approved and confirmed all of the provisions contained in such certificate. In
addition to the foregoing, Landlord reserves the right to exercise any further
rights or remedies available to it under the Lease, at law or equity by reason
of Tenant's default hereunder.
28. Notices. Each provision of this Lease, or of any applicable laws,
ordinances, regulations, and other requirements with reference to the sending,
mailing or delivery of any notice, or with reference to the making of any
payment by Tenant to Landlord, shall be deemed to be complied with when and if
the following steps are taken:
28.1 All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at Landlord's Address set forth
in Section 1.5 or at such other address as Landlord may specify from time to
time by written notice delivered in accordance herewith, and
28.2 Any notice or document required to be delivered hereunder shall
be deemed to be delivered if actually received and whether or not received when
deposited in the United States mail, postage prepaid, certified or registered
mail (with or without return receipt requested), addressed to the parties hereto
at the respective addresses set forth in Article 1 or at such other address as
either of said parties shall have theretofore specified by written notice
delivered in accordance herewith.
Any and all notices to Landlord shall be also be sent to:
Larry H. Haber, Esq.
1330 Avenue of the Americas
25th Floor
New York, New York 10019
- 26 -
<PAGE>
Any and all notices to Tenant shall be also be sent to:
Stuart S. Ball, Esq.
Littman Krooks Roth & Ball P.C.
655 Third Avenue
New York, New York 10017-5617
29. Force Majeure. Any prevention, delay or stoppage of work or other
obligation to be performed by Landlord or Tenant which is due to strikes, labor
disputes, inability to obtain labor, materials, equipment or reasonable
substitutes thereof, acts of God, governmental restrictions or regulations or
controls, judicial orders, enemy or hostile government actions, civil commotion,
fire or other casualty, or other causes beyond the control of either Landlord or
Tenant, as the case may be, shall forgive the performance of the work by that
party for a period equal to the duration of that prevention, delay or stoppage.
Nothing in this Article 29 shall excuse or delay Tenant's obligation to pay Base
Rent, Additional Rent or other charges under this Lease, except as expressly
provided for otherwise in the Lease.
30. Severability. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during the Lease
Term, then and in that event, it is the intention of the parties hereto that the
remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added as a
part of this Lease a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
31. Amendments: Binding Effect. This Lease may not be altered, changed or
amended, except by instrument in writing signed by both parties hereto. No
provision of this Lease shall be deemed to have been waived by Landlord or
Tenant unless such waiver be in writing signed by Landlord or Tenant, as the
case may be, and addressed to the other party, nor shall any custom or practice
which may evolve between the parties in the administration of the terms hereof
be construed to waive or lessen the right of Landlord or Tenant to insist upon
the performance by the other party in strict accordance with the terms hereof.
The terms and conditions contained in this Lease shall apply to, inure to the
benefit of, and be binding upon the parties hereto, and upon their respective
successors in interest and legal representatives, except as otherwise herein
expressly provided.
32. Quiet Enjoyment. Provided Tenant has performed all of the terms and
conditions of this Lease, including the payment of Rent, to be performed by
Tenant within any applicable notice and cure period, Tenant shall peaceably and
quietly hold and enjoy the Premises for the Lease Term, without hindrance from
Landlord, subject to the terms and conditions of this Lease.
33. Gender. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
34. Joint and Several Liability. If there is more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several. If there
is a guarantor of Tenant's obligations hereunder, the obligations hereunder
imposed upon Tenant shall be joint and several obligations of Tenant and such
guarantor and Landlord need not first proceed against Tenant before proceeding
against such guarantor nor shall any such guarantor be released from its
guaranty for any reason whatsoever, including without limitation, in case of any
amendments hereto, waivers hereof or failure to give such guarantor any notices
hereunder.
35. Captions. The captions contained in this Lease are for convenience of
reference only, and in no way limit or enlarge the terms and conditions of this
Lease.
36. Exhibits and Attachments. All exhibits, attachments, riders and
addenda referred to in this Lease are incorporated into this Lease and made a
part hereof for all intents and purposes.
- 27 -
<PAGE>
37. No Joint Venture. Landlord and Tenant are not and shall not be deemed
to be partners or joint venturers with each other.
38. Intentionally Deleted.
39. Evidence of Authority. If Tenant is other than a natural person,
Tenant shall deliver to Landlord such legal documentation as Landlord may
request to evidence the authority of those signing this Lease to bind the
Tenant.
40. Governing Law. This Lease shall be construed and interpreted in
accordance with and governed by the laws of the state in which the Premises are
located.
41. Entire Agreement. This Lease constitutes the entire agreement between
the parties, and there is no other agreement between the parties relating in any
manner to the Project.
42. Exculpation. The term Landlord as used in this Lease so far as
covenants or obligations on the part of Landlord are concerned shall be limited
to mean and include only the owner or owners at the time in question of the
Landlord's interest in the Building. Tenant acknowledges and agrees, for itself
and its successors and assigns, that no trustee, director, officer, employee or
agent of Landlord shall be personally liable for any of the terms, covenants or
obligations of Landlord hereunder (excluding the return to Tenant of any
remaining balance of the Security Deposit held by Landlord upon termination of
this Lease if Landlord has fraudulently converted the Security Deposit), and
Tenant shall look solely to Landlord's interest in the Building and any
insurance or sale proceeds for the collection of any judgment (or enforcement or
any other judicial process) requiring the payment of money by Landlord with
respect to any of the terms, covenants and conditions of this Lease to be
observed or performed by Landlord and no other property or assets of Landlord
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of any obligation due Tenant or its successors or assigns.
43. Covenants are Independent. Each covenant of Landlord and Tenant under
this Lease is independent of each other covenant under this Lease, and no
default by either party in performance of any covenant shall excuse the other
party from the performance of any other covenant.
44.Intentionally Deleted.
45.Hazardous Materials.
45.1 Tenant shall not cause or permit any Hazardous Material (as
defined in Subsection 45.3 below), other than de minimus quantities for normal
office use and cleaning (provided Tenant shall keep at the Premises, at all
times, copies of all Material Safety Data Sheets or other written information
prepared by manufacturers, importers or suppliers of any chemical and all
notices, filings, permits and any other written communications from or to Tenant
and any regulating entity, if applicable), to be brought, kept or used in or
about the Building by Tenant, its agents, employees, contractors or invitees.
Tenant hereby indemnifies Landlord from and against any breach by Tenant of the
obligations stated in the preceding sentence, and agrees to defend and hold
Landlord harmless from and against any and all loss, damage, cost and/or
expenses (including, without limitation, diminution in value of the Building,
damages for the loss or restriction on use of rentable or usable space or of any
amenity of the Building, damages arising from any adverse impact on marketing of
space in the Building, and sums paid in settlement of claims, attorneys' fees,
consultant fees, and expert fees) which arise during or after the term of this
Lease as a result of such breach. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Building which results from such a breach. Without
limiting the foregoing, if the presence of any Hazardous Material in the
Building caused by Tenant results in any contamination of the Building, Tenant
shall promptly take all actions at its sole expense as are necessary to return
the Building to the conditions existing prior to the introduction of such
Hazardous Material to the Building; provided that the Landlord's approval of
such actions, and the contractors to be used by Tenant in connection therewith,
shall first be obtained.
- 28 -
<PAGE>
Notwithstanding anything to the contrary contained in the foregoing, if there
are presently any asbestos ("Hazardous Material") in the Premises which are in
violation of any applicable law, rule or regulation, Landlord shall remove, at
its sole cost and expense, said Hazardous Material(s) or take such steps to make
the Hazardous Material(s) comply with all applicable laws, rules or regulations
and other requirements relating to any Hazardous Materials, which are imposed by
any governmental authority ("Requirements") as of the Commencement Date #1 and
Commencement Date #2. Supplementing the above, Tenant shall be obligated, at
Tenant's own cost and expense, to comply with Requirements relating to Hazardous
Material(s) which are hereafter imposed by any governmental authority, insofar
as the same affect any materials or improvements installed or made by Tenant to
the Demised Premises. Tenant further agrees, however, that in addition to its
other obligations set forth herein relating to Hazardous Materials(s), if any,
in the Demised Premises, in the event any Tenant's Work causes or results in
said Hazardous Materials(s) to be in violation of an applicable law, rule or
regulation, Tenant shall immediately remove, at its sole cost and expense, said
Hazardous Materials(s) or take such steps to make the Hazardous Materials(s)
comply with the applicable law, rule or regulation.
45.2 Notwithstanding any provision in this Lease to the contrary, it
shall not be unreasonable for Landlord to withhold its consent to any proposed
transfer, assignment, or subletting of the Premises if (i) the proposed
transferee's anticipated use of the Premises involves the generation, storage,
use, treatment, or disposal of Hazardous Material; (ii) the proposed transferee
has been required by any prior landlord, lender, or governmental authority to
take remedial action in connection with Hazardous Material contaminating a
property if the contamination resulted from such transferee's actions or use of
the property in question; or (iii) the proposed transferee is subject to an
enforcement order issued by any governmental authority in connection with the
use, disposal, or storage of a Hazardous Material.
45.3 As used herein, the term "Hazardous Material" means any
hazardous or toxic substance, material, or waste which is or becomes regulated
by any local governmental authority or the United States Government. The term
"Hazardous Material" includes, without limitation, any material or substance
which is (i) defined as a "hazardous waste", "extremely hazardous waste", or
"restricted hazardous waste" or similar term under the law of the jurisdiction
where the property is located, or (ii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
ss. 1317), (iii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 47 U.S.S. ss. 6901 et seq. (42
U.S.C. ss. 6903), or (iv) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ss. 9600 et seq. (42 U.S.C. ss. 9600).
45.4 As used herein, the term "Laws" means any applicable federal,
state, or local laws, ordinances, or regulation relating to any Hazardous
Material affecting the Building, including, without limitation, the laws,
ordinances, and regulations referred to in Subsection 45.3 above.
45.5 Landlord and its employees, representatives and agents shall
have access to the Building during reasonable hours and upon reasonable notice
to Tenant in order to conduct periodic environmental inspections and tests of
Hazardous Material contamination of the Building.
45.6 Tenant agrees that it will cooperate with Landlord at
Landlord's sole cost and expense (however, if Tenant has in any manner
contributed to the necessity therefor, at Tenant's sole cost and expense) to
permit Landlord to comply with the provisions of the New Jersey Industrial Site
Recovery Act ("ISRA"), if applicable, or any similar applicable laws, prior to
its termination of any activities in the Premises or the expiration of the term
of this Lease, whichever is earlier. If in connection with a sale, transfer, or
mortgage of the Building by Landlord or other transaction by the Landlord where
Landlord is required or deems it desirable to comply with ISRA, Tenant will at
Landlord's sole cost and expense cooperate with Landlord and provide any
reasonable information reasonably requested by Landlord to comply with ISRA or
to obtain a Letter of Nonapplicability.
46. Effect of Conveyance. If Landlord shall sell or lease the Building,
Landlord shall be entirely freed and relieved of all its covenants and
obligations hereunder, and it shall be deemed and construed (without further
agreement between the parties hereto or between the parties to such conveyance)
that the purchaser or lessee of the Building has assumed and agreed to carry out
all the obligations of Landlord hereunder, provided the purchaser or lessee of
the Building has assumed the obligations of Landlord under this Lease in
writing.
- 29 -
<PAGE>
47. Easements. Any diminution or obstruction of light, air or view by any
structure which may be erected on lands adjacent to the Building shall not
affect this Lease or impose any liability on Landlord. Tenant shall not acquire
any right or easement for the use of any door or passageway in any portion of
the Building or the Project, except the easement of necessity for ingress and
egress, if any, in the doors and passageway(s) directly connecting with the
Premises.
48. Waiver of Right of Redemption. Tenant, for itself and all persons
claiming through or under Tenant, hereby expressly waives any and all rights
which are or may be conferred upon Tenant by any present or future law to redeem
the Premises, or to any new trial in any action or ejectment under any provision
of law, after re-entry thereupon by Landlord, or after any warrant to dispossess
or judgement in ejectment. If Landlord shall acquire possession of the Premises
by summary proceedings or in any other lawful manner without judicial
proceedings, it shall be deemed a "re-entry" as that term is used herein.
49. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY LAW, IT IS
MUTUALLY AGREED BY AND BETWEEN LANDLORD AND TENANT THAT THE RESPECTIVE PARTIES
HERETO SHALL, AND THEY DO HEREBY, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BETWEEN THE PARTIES HERETO OR THEIR SUCCESSORS OR
ASSIGNS ON ANY MATTERS ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE,
THE RELATIONSHIP OF LANDLORD AND TENANT, AND/OR TENANT'S USE OF, OR OCCUPANCY
OF, THE PREMISES. TENANT FURTHER AGREES THAT IT SHALL NOT INTERPOSE ANY
COUNTERCLAIM OR COUNTERCLAIMS (EXCEPT FOR COMPULSORY OR STATUTORY COUNTERCLAIMS)
IN A SUMMARY PROCEEDING OR IN ANY ACTION BASED UPON NON-PAYMENT OF RENT OR ANY
OTHER PAYMENT REQUIRED OF TENANT HEREUNDER. THIS WAIVER IS MADE FREELY AND
VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER EACH OF THE PARTIES HERETO HAS HAD
THE BENEFIT OF ADVICE FROM LEGAL COUNSEL ON THE SUBJECT.
50. Interpretation. Should any provisions of this Lease require judicial
interpretation, it is agreed that the court interpreting or construing the same
shall not apply a presumption that the terms of any such provision shall be more
strictly construed against one party or the other by reason of the rule of
construction that a document is to be construed most strictly against the party
who itself or through its agent prepared the same, it being agreed that the
agents of all parties hereto have participated in the preparation of this Lease.
51. No Recordation of Lease. Without the prior written consent of
Landlord, neither this Lease nor any memorandum hereof shall be recorded or
placed on public record.
52. Electric Current.
Tenant acknowledges and agrees that no utilities or other services
have been included in the Rent and that Landlord shall have no obligation to
furnish or supply electricity, heat, air conditioning, water or any other
utility or service to or for the Demised Premises other than as specifically set
forth in this Article 52 and this Lease.
For Premises #1, subsequent to the date PSE&G upgrades the
electrical capacity of the Building, Tenant shall have the option to obtain its
electricity as provided for in Section 52.1 or Tenant may, at its sole option,
purchase electric current at its own cost and expense from the public utility
serving the building for all of its electrical requirements, using existing
building system feeders, risers and wiring to the extent that the same are
available, suitable and safe for such purposes. Tenant shall pay the bills of
said utility pursuant to the meter to be installed by Tenant, and Tenant's
failure to pay the same when due shall be deemed a default under this lease. At
any time during the term Landlord may at its option (provided appropriate
measuring devices and associated equipment are installed by it at its sole cost
and expense) supply Tenant's electric service by meter, and Tenant covenants and
agrees in such instance to purchase its electric service requirements at rates
set by Landlord, provided that such rates shall not exceed those at which Tenant
could purchase such service directly. Tenant's use of electric current in the
Demised Premises shall not at any time exceed the capacity of any of the
existing electrical conductors and equipment or other electrical facilities in
or serving the Demised Premises without the prior written consent of Landlord in
each instance, which consent shall not be unreasonably withheld, conditioned or
delayed. Should Landlord grant any such consent, all additional risers or other
equipment required therefor shall be installed by Landlord and the cost thereof
shall be paid by Tenant promptly upon demand.
- 30 -
<PAGE>
52.1 Until such time as Tenant has installed all meters and
equipment necessary to purchase electric current at its own cost and expense
from the public utility for Premises #1 as provided for in the preceding
paragraph, Landlord shall supply Tenant and Tenant shall pay Landlord, as
Additional Rent, electricity for all of Tenant's electrical needs for both
Premises #1 and Premises #2 including, but not limited to, the air conditioning
units (if any) serving the Demised Premises during the normal business hours
referred to below, (i.e., there shall be no separate charge to Tenant for such
electricity by way of measuring the same on any meter or otherwise during the
normal business hours referred to below). The cost of furnishing electricity to
Tenant shall be as estimated in this Paragraph, subject, however, to all of the
other provisions of this Article. Initially, an estimate of $789.67 [$2.00 psf
per annum x 4,738 square feet / 12] shall be charged to Tenant as the monthly
charge for Landlord's service of furnishing electricity to Premises #1 (such
amount, as the same may be increased pursuant to any of the provisions of this
Article, being hereinafter referred to as the "electric factor") for use during
normal business hours of 8:00 a.m. to 6.00 p.m., Mondays through Fridays, and
8:00 a.m. to 1:00 p.m. on Saturdays. An estimate of $2,510.13 [$1.50 psf per
annum x 20,081 square feet / 12] shall be charged to Tenant as the monthly
charge for Landlord's service of furnishing electricity to Premises #2 (such
amount, as the same may be increased pursuant to any of the provisions of this
Article, being hereinafter referred to as the "electric factor") for use during
normal business hours of 8:00 am. to 6:00 p.m., Mondays through Fridays, and
9:00 am. to 1:00 p.m. on Saturdays. The foregoing charges are referred to as the
"Electric Charge". At any time after Tenant takes possession of Premises #1 or
Premises #2, Landlord may cause a survey to be prepared by a reputable,
independent electrical consultant to be selected by Landlord, the cost of which
survey shall be borne equally by Tenant and Landlord. The purpose of said survey
shall be to determine the appropriate charge to Tenant for electricity to be
charged as Additional Rent taking into account the full electric service
including the estimated demand based upon the connected load necessary or useful
for Tenant's operation of all equipment, lighting and other installations,
including, without limitation, air conditioning, heating and ventilation and any
additional hours in excess of normal business hours during which the Demised
Premises are in use (e.g., after hours air conditioning). When the charge for
the electricity has been so determined as a result of such survey, the
Additional Rent charge shall be increased (but in no event decreased) by the
difference between the charge per annum determined by the survey and the
estimated electric factor, effective as of first day of the first month
subsequent to the date of the survey.
The electric factor shall, from time to time, be determined based on a
rate equal to Landlord's cost [including Landlord s administrative costs
relating to same, inclusive of any taxes included in or applicable to such
rates, for supplying all electricity consumed at the Demised Premises, as
determined by readings, from time to time throughout the Term, of Tenant's check
meter(s) [hereafter "Checkmeter"]. Landlord shall install the Checkmeter for the
Demised Premises, the cost of same to be borne equally by Landlord and Tenant.
Tenant shall, at its own cost and expense, be responsible for the maintenance,
repair and replacement (if necessary) of said meter.
52.2 Tenant's use of electricity in the Demised Premises shall not
at any time exceed six (6) watts per rentable square foot, and Landlord agrees
that at no time during the term of this Lease, shall the electrical capacity
available at the Premises be less than six (6) watts per rentable square foot.
In order to insure that such capacity is not exceeded and to avert a possible
adverse effect upon the Building electric service, Tenant shall not, without
Owner's prior written consent in each instance, make any alteration or addition
to the electric system of the Demised Premises. Should Owner grant such consent
(not to be unreasonably withheld, delayed or conditioned), all additional risers
or other equipment required therefor shall be installed by Owner at Tenant's
sole cost and expense, payable as Additional Rent within ten (10) days of
Landlord's written demand. As a condition to granting such consent, Owner may
require that Tenant agree to an increase in the Base Rent by an amount which
will reflect the additional service to be furnished by Owner, that is, the
potential electric energy (connected load) to be made available to Tenant based
upon the estimated additional capacity of such additional risers or other
equipment. Such increase shall be determined on the basis of the value of
furnishing and installing any additional equipment or electrical facilities.
52.3 If the public utility rate schedule for the supply of electric
current to the Building shall be increased at any time after the date hereof, or
if there shall be a change in taxes or if additional taxes shall be imposed upon
the sale or furnishing of such electric current, or if there shall be a change
in the space constituting the Demised Premises, or if Tenant's failure to
maintain its machinery and equipment in good order and repair causes greater
- 31 -
<PAGE>
consumption of electrical current, or if Tenant adds any machinery appliances,
or equipment (other than ordinary business equipment, e.g., faxes, copiers and
desk top computers), the Base Rent herein reserved shall be equitably adjusted
to reflect the resulting increase but at no less than Owner's cost therefor and
the amount set forth in Paragraph 52.1 hereof shall also be adjusted
accordingly. If Owner and Tenant cannot agree thereon, the amounts of such
adjustments shall be determined based on standard practices, by an independent
electrical engineer, to be selected by Owner and paid by Owner. When the amounts
of such adjustment are so determined, the parties shall execute an agreement
supplementary hereto to reflect such adjustments in the amount of the Annual
Rent stated in this Lease and in the amount set forth in Paragraph 52.1 hereof
effective from the date of the increase or decrease of such usage as determined
by such electrical engineer, or as the case may be, from the effective date of
such increase or decrease in the public utility rate schedule; but such
adjustments shall be effective from the commencement date of the Lease or the
date of the survey, whichever is applicable whether or not such a supplementary
agreement is executed.
52.4. Owner reserves the right to discontinue furnishing electric
energy to Tenant in the Demised Premises at any time upon sixty (60) days prior
written notice to Tenant for Tenant to arrange to obtain electric service from
the public utility company furnishing electric service from the building.
However, Owner shall not discontinue electric service to the Premises unless and
until Tenant secures same from the public utility; provided that Tenant proceeds
with diligence to obtain such electric service following Owner's notice. If
Owner exercises such right of termination, this Lease shall continue in full
force and effect and shall be unaffected thereby except only that, from and
after the effective date of such termination, Owner shall not be obligated to
furnish electric energy to Tenant and the Additional Rent payable under this
Article shall be accordingly reduced by such amount then payable by Tenant under
this Article per annum. If Owner so discontinues furnishing electric energy to
Tenant, Tenant shall arrange to obtain electric energy directly from the public
utility company furnishing electric service to the Building. Such electric
energy may be furnished to Tenant by means of the then existing building system
feeders, risers, and wiring to the extent that the same are available, suitable,
and safe for such purposes. All meters and additional panel boards, feeders,
risers, wiring, and other conductors and equipment which may be required to
obtain electric energy directly from such public utility company shall be
installed and maintained by Owner at its expense.
52.5. If any sales tax is imposed upon Landlord with respect to
electrical energy furnished as a service to Tenant by any Federal, State, or
Municipal Authority, Tenant covenants and agrees that where permitted by law or
applicable regulations, Tenant's pro-rata share of such sales taxes shall be
reimbursed by Tenant to Landlord.
52.6 Owner shall have the right to procure periodic surveys made by
an independent utility consultant selected by Owner (the cost of which shall be
shared equally by Landlord and Tenant) and if such utility consultant determines
that there has been an increase in Tenant's use of electrical current or
additional equipment or machinery have been installed within the Demised
Premises then the provisions of Paragraph 52.3 shall be applicable in accordance
with the terms thereof. In the event that either a survey by Landlord or a
reading of the Checkmeter indicates that the Electric Charge then being paid by
Tenant is not sufficient for Tenant's electrical usage, Landlord will forward to
Tenant a statement showing Additional Rent due as a result of such comparison
over the amount then payable, and Tenant shall pay to Landlord the full amount
of such deficiency within fifteen (15) days after the rendition of such
Landlord's statement. Thereafter, the monthly Electric Charge payable by Tenant
shall be that charge indicated in the aforesaid Landlord's statement.
52.7 If Tenant shall require electricity beyond the normal business
hours specified above or for purposes other than as specified in this Article,
the Additional Rent charge shall be adjusted to reflect the resulting increases
in Landlord's cost in providing electricity to the Demised Premises, and the
electric factor shall also be adjusted accordingly. Tenant has reviewed the
electrical capacity available to the Demised Premises and represents to and for
the benefit of Landlord that it is satisfied therewith.
52.8 Except as otherwise provided for in this Lease, Landlord shall
not in any way be liable or responsible to Tenant for any loss, damage or
expense which Tenant may sustain or incur if: (i) the supply of electricity to
the Demised Premises is interrupted; (ii) the quantity or character of
electricity is changed or is no longer
- 32 -
<PAGE>
available or suitable for Tenant's requirements; or (iii) Tenant objects to, is
inconvenienced by or otherwise affected by any requirement of the public utility
company serving the Building. Tenant will comply with the general rules,
regulations, terms, conditions and requirements of the public utility supplying
electricity to the Building that may now or hereafter be applicable thereto.
Tenant shall enter into such modifications of this Lease as Landlord may from
time to time request in connection with any requirement of any public utility or
any requirement of law pertaining to electrical consumption or service, or
charges therefor. If any equipment or machinery furnished by Landlord break down
or for any cause cease to function properly, Landlord shall use reasonable
diligence to repair same promptly, but Tenant shall have no claim for abatement
of Base Rent or Additional Rent or damages for any interruptions in service
occasioned thereby or resulting therefrom. Subject to the terms and provisions
of Article 5.9 of this Lease, if Landlord fails to use the aforesaid reasonable
diligence and a material interruption in service continues for twenty (20)
business days after written notice from Tenant to Landlord detailing the
interruption in service, then Base Rent and Additional Rent shall be abated
thereafter until such material interruption in service is cured by Landlord.
52.9 Notwithstanding anything to the contrary contained in this
Article 52, in the event, subsequent to the survey(s) referred to herein, Tenant
is not reasonably satisfied with the results thereof, Tenant shall notify
Landlord of same in writing, including the basis for Tenant's objection(s)
("Tenant's Disapproval Notice") within five (5) business days of its receipt of
the results of the survey. Within seven (7) business days of Landlord's receipt
of Tenant's Disapproval Notice, Landlord shall either (i) accept the those items
specified by Tenant in Tenant's Disapproval Notice or (ii) object to Tenant in
writing, specifying the reason(s) Landlord objects to Tenant's Disapproval
Notice. If Landlord objects to Tenant's Disapproval Notice, Landlord and Tenant
shall meet within five (5) business days thereafter in an attempt to resolve the
outstanding items within Tenant's Disapproval Notice, and if Landlord and Tenant
cannot agree thereon at such meeting, the revised Electric Charge Date shall be
decided by arbitration before the American Arbitration Association.
53. Intentionally Deleted
54. Tenant's Work. This Article 54 shall not apply to any work performed
by Landlord pursuant to Exhibit E hereof.
A. Prior to Tenant's commencing any work pursuant to this Article or any
structural work or work relating to the building's systems in the Demised
Premises, Tenant shall submit to Landlord for Landlord's written approval, which
approval shall not be unreasonably withheld or delayed, drawings, plans and
specifications including, but not limited to, plans for the entranceways, use of
window areas, signage and other architectural plans (herein collectively
referred to as "Tenant's Plan") for or in connection with the improvements,
installations, additions, alterations and decorations to be made by Tenant
(herein collectively referred to as "Tenants Work"). Tenant shall also submit to
Landlord for its written approval a list of contractors, subcontractors, and
copies of contracts and subcontracts for Tenant's Work ("Tenant's Contracts").
Tenant's Plan shall be fully detailed, shall show complete dimensions, shall not
require any changes in the structure of the building and shall not be in
violation of any laws, orders, rules or regulations of any governmental
department or bureau having jurisdiction of the Demised Premises. Landlord's
consent shall not be required for decorative or non-structural work of Tenant
(other than wallpaper or paneling or non-structural work which by applicable law
requires a permit) costing less than $25,000.00 in the aggregate, which does not
affect any Building systems or structure of the Building [unless the paint used
is a color other than white or off-white], however, Landlord must receive no
less than three (3) business days written notice of said decorative work along
with proper certificates of insurance from the contractor).
B. Within ten (10) business days after submission to Landlord of Tenant's
Plan and Tenant's Contracts, Landlord shall either approve same or shall set
forth in writing the particulars in which Landlord does not approve same, in
which latter case Tenant shall, within ten (10) business days after Landlord's
notification, return to Landlord appropriate corrections thereto. Such
corrections shall be subject to Landlord's approval. Tenant shall pay to
Landlord, promptly upon being billed, any reasonable charges or expenses
Landlord may incur in reviewing Tenant's Plan and Tenant's Contracts and/or
insuring compliance therewith.
- 33 -
<PAGE>
C. Tenant further agrees that Tenant shall not make any changes (except to
a deminimus extent) in Tenant's Plan or Tenant's Contracts subsequent to
approval by Landlord unless Landlord consents to such changes which consent
shall not be unreasonably withheld, delayed or conditioned. Tenant shall pay to
Landlord all costs and expenses caused by such changes which Landlord may incur
or sustain in Landlord's Work (if any) or in the performance by Landlord of any
construction or work it is performing in the Building; Landlord shall have the
right to refuse to consent to any such changes if in the reasonable judgment of
Landlord or Landlord's Architect (defined below) such changes materially deviate
from Tenant's Plan theretofore approved by Landlord in a manner that will
adversely affect the structural integrity of the Building or the proper
functioning of any Building systems or otherwise violate the terms of this
Lease. Any charges payable under this Section C or the preceding Section B shall
be paid by Tenant from time to time within twenty (20) days following as
Additional Rent, whether or not the Rent Commencement Date has occurred.
D. Following compliance by Tenant with its obligations under the foregoing
Sections and approval of Tenant's Plan and Tenant's Contracts by Landlord,
Tenant shall commence Tenant's Work and it shall proceed diligently with same,
in order to complete same within a reasonable period of time using new first
class materials and in a good and workmanlike manner.
E. Tenant agrees that in the performance of Tenant's Work (a) neither
Tenant nor its agents or employees shall interfere with the work being done by
Landlord and its contractors, agents and employees, (b) that Tenant shall comply
with any reasonable work schedule, rules and regulations proposed by Landlord,
its agents, contractors or employees, (c) that the labor employed by Tenant
shall be harmonious and compatible with the labor employed by Landlord in the
Building, it being agreed that if in Landlord's judgment the labor is
incompatible Tenant shall forthwith upon Landlord's demand withdraw such labor
from the premises, (d) that prior to commencing Tenant's Work, Tenant shall
procure and deliver to Landlord worker's compensation, public liability,
property damage and such other insurance policies, in such amounts as shall be
reasonably acceptable to Landlord in connection with Tenant's Work, and shall
upon Landlord's request cause Landlord, its managing agent, and any holder of a
Superior Mortgage and lessor under a Superior Lease to be named as an additional
insured thereunder, (e) that prior to commencing Tenant's work, Tenant shall
obtain the necessary consents, authorizations and licenses from municipal or any
other government authorities having jurisdiction of the Building or premises
necessary for Tenant's operations, improvements and alterations and that no work
shall be started or equipment installed unless and until all necessary consents,
authorizations and licenses shall have been obtained by Tenant and by Tenant's
contractors, (f) that Tenant shall hold Landlord harmless from and against any
and all claims arising from or in connection with any act or omission of Tenant
or its agents, contractors and employees, (g) that Tenant's Work shall be
performed in accordance with the approved Tenant's Plan and in compliance with
the laws, orders, rules and regulations of any governmental department or bureau
having jurisdiction of the Demised Premises and Tenant immediately shall correct
at Tenant's sole cost and expense any nonconforming work, (h) that Tenant
promptly shall pay for Tenant's Work in full, to the extent payable under any
contract with respect to Tenant's Work between Tenant and any third party
hereunder, and to the extent that such payment is not the responsibility of
landlord, and, at Landlord's option, that Tenant shall provide for the removal
and/or bonding of any lien to attach to the Demised Premises or the Land and/or
Building.
F. In the event that the "hard" cost of Tenant's Work shall exceed
$50,000.00, in addition to complying with all other provisions hereof, Tenant
shall (a) furnish Landlord with a contract in assignable form made with a
reputable and responsible contractor, providing for the completion of all work,
labor and materials necessary to complete Tenant's Work in accordance with
Tenant's Plan; and (b) furnish Landlord with an assignment of the contract so
furnished, duly executed and acknowledged by Tenant, by its terms to be
effective upon any termination of this Lease or upon Landlord's re-entry upon
the Demised Premises following a default by Tenant beyond applicable notice and
grace periods prior to the complete performance of such contract, such
assignment also to include the benefit of all payments made on account of said
contract including payments made prior to the effective date of such assignment.
G. Landlord may, at any time and from time to time, at Tenant's reasonable
expense, in addition to any other right of access given to Landlord pursuant to
the terms of this Lease, enter upon the Demised Premises with one or more
engineers and/or architects of Landlord's selection (collectively, "Landlord's
Architect") to determine the course and degree of completion of Tenant's Work
and its compliance with Tenant's Plan and the terms and conditions of this
Lease.
- 34 -
<PAGE>
H. Notwithstanding anything to the contrary contained in the foregoing, if
there are presently any asbestos ("Hazardous Material") in the Premises which
are in violation of any applicable law, rule or regulation, Landlord shall
remove, at its sole cost and expense, said Hazardous Material(s) or take such
steps to make the Hazardous Material(s) comply with all applicable laws, rules
or regulations and other requirements relating to any Hazardous Materials, which
are imposed by any governmental authority ("Requirements") as of Commencement
Date #1 and Commencement Date #2 (as the case may be). Supplementing the above,
Tenant shall be obligated, at Tenant's own cost and expense, to comply with
Requirements relating to Hazardous Material(s) which are hereafter imposed by
any governmental authority, insofar as the same affect the Demised Premises.
Tenant further agrees, however, that in addition to its other obligations set
forth herein relating to Hazardous Materials(s), if any, in the Demised
Premises, in the event any Tenant's Work causes or results in said Hazardous
Materials(s) to be in violation of an applicable law, rule or regulation, Tenant
shall immediately remove, at its sole cost and expense, said Hazardous
Materials(s) or take such steps to make the Hazardous Materials(s) comply with
the applicable law, rule or regulation.
I. Nothing contained in this Lease shall be deemed, construed or
interpreted to imply any consent or agreement on the part of Landlord to subject
Landlord's interest or estate to any liability under any mechanics's or other
lien law. If any mechanic's or other lien or any notice of intention to file a
lien is filed against the Premises or any part thereof, for any work, labor,
services or materials claimed to have been performed or furnished for or on
behalf of Tenant or anyone holding any part of the Premises through or under
Tenant, Tenant shall cause the same to be canceled and discharged of record by
payment, bond or order of a court of competent jurisdiction within thirty (30)
days after notice by Landlord to Tenant.
J. Tenant covenants and agrees that it shall make improvements and
alterations to the Demised Premises as set forth below. Tenant acknowledges that
Tenant's agreements as herein set forth constitute a substantial obligation of
Tenant and a material inducement for Landlord to enter into this Lease and but
for this inducement Landlord would not enter into this Lease. A breach of this
covenant shall be deemed a material default under the Lease. Accordingly, Tenant
shall, subject to Landlord's approval as required under this Article, perform
the following work to the Demised Premises:
Tenant shall reinforce the floor load capacity of any area of the Demised
Premises which contains telecommunications equipment of Tenant not supported by
the fifty (50) pound per square foot floor load of the Premises
("Reinforcement") at Tenant's own cost and expense. Tenant shall give Landlord
no less than ten (10) business days prior written notice of the Reinforcement
with copies of proposed plans for Landlord's approval, which shall not be
unreasonably withheld or delayed. As-built plans shall be submitted to Landlord
by Tenant upon the completion of the Reinforcement. The Reinforcement shall not
interfere with the use of the Building by other tenants and shall be done at
times other than Regular Business Hours.
K. Without in any manner whatsoever limiting the terms and provisions of
this Article, Tenant herein must supply copies of the following items and comply
with all proper codes which compliance shall include but not be limited to:
1. Architectural and mechanical plans are reviewed for compliance
with Building Standard and Newark Building Code.
2. Insertion of appropriate standard Building Department notes
and details.
3. Certification by a professional engineer as to compliance with
the Building Code.
4. Filing plans and specifications with the Department of
Buildings and processing to approval.
5. Making controlled inspection of air conditioning system,
complete inspection of entire installation and filing any
applicable forms indicating proper completion of said
installation with the Department of Buildings. Tenant shall
obtain final approval from any required governmental agency,
an approved Certificate of Completion ("Completion
Certificate"), to be filed by Tenant with the Department of
Buildings.
- 35 -
<PAGE>
A Tenant installation will not be considered complete until an approved
Completion Certificate is filed with the Department of Buildings.
L. Subsequent to the delivery of Premises # 1 to Tenant as provided for in
this Lease, Tenant may commence to perform Tenant's Work to Premises #1, on the
condition that when such work is performed it is done (i) in accordance with
this Article 54, (ii) in accordance with the rules and regulations of the
Building and (iii) so as to not interfere with the performance of the Tenant
Improvements or Landlord's Work referred to in Exhibit "E".
55. Cleaning.
A. Tenant shall clean Premises #1 at Tenant's sole cost and expense.
Tenant shall be allowed to select its own cleaning contractor, who shall be
reasonably satisfactory to Landlord, and develop its own cleaning specifications
with rubbish removal to be included in its specifications. Tenant agrees that
Tenant's cleaning contractor shall maintain liability insurance at a level
consistent with the industry and that said policy shall name Landlord and
Landlord's Managing Agent as additional insureds.
B. Supplementing Landlord's obligations to clean Premises #2
pursuant to Article 5.1 of this Lease, the entire Demised Premises, including
the interior of the windows, are to be kept neat by Tenant, at its sole cost and
expense, in a manner reasonably satisfactory to Landlord. Tenant agrees that it
will independently contract for the removal of all rubbish, refuse, garbage and
waste from the Demised Premises other than ordinary quantities thereof. The
removal of such rubbish, refuse, garbage and waste shall be subject to such
rules and regulation as, in the reasonable judgment of Landlord, are necessary
for the proper operation of the Building, provided the same are uniform, and
nondiscriminatory. Tenant further agrees not to permit the accumulation (unless
in concealed metal or plastic containers) of any rubbish or garbage in, on or
about any part of the Demised Premises and not to permit any garbage or rubbish
to be stored, collected or disposed of from the Demised Premises except only
during the hours from 7:00 p.m. to 6:00 a.m. All of Tenant's garbage and refuse
shall be stored in a designated storage area within the Demised Premises. Tenant
shall not encumber or obstruct, or permit to be encumbered or obstructed, the
street and sidewalk adjacent to or abutting upon the Demised Premises.
C. As an essential inducement to Landlord to enter into this Lease,
Tenant agrees that no supplies or deliveries, nor any of Tenant's refuse or
rubbish, shall be kept or permitted to be kept in any area outside of the
Demised Premises. Tenant acknowledges that no other portion of the Building, of
which the Demised Premises are a part, is included within the Demised Premises
and Tenant shall have no right to utilize the same for any purposes whatsoever.
D. Tenant covenants that Tenant shall, at is own cost and expense,
diligently keep the Demised Premises free and clear of any odor, rats, mice,
insects and other vermin. In furtherance thereof, Tenant shall employ an
exterminator on a monthly basis, among others, who will utilize the best
prevailing method for the prevention of any odor from any source, or
infestation, by and extermination of, said animals and insects. If, in
Landlord's reasonable judgment, Tenant shall fail to satisfactorily carry out
the provisions of this paragraph, Landlord may, but shall not be obligated to,
employ an exterminator or other service, and the cost and expense incurred by
Landlord for such exterminator or other service shall be repaid to Landlord by
Tenant, on demand, and such amounts so repayable shall be considered as
Additional Rent.
E. Tenant, at its own cost and expense, shall install and maintain
all equipment and appliances as may be required by, and otherwise fully comply
with, all applicable governmental codes and regulations (including, but not
limited to, the Newark City Fire Department, the New Jersey Board of Fire
Underwriters and Fire Insurance Rating Organization) and as required by
Landlord's insurers, including but not limited to fire extinguisher appliances
and systems except that nothing contained herein shall require Tenant to make
structural changes to the Demised Premises unless such changes are required as a
result of Tenant's use (as opposed to Tenant's permitted use), manner of use of
the Demised Premises or changes made to the premises by Tenant.
- 36 -
<PAGE>
F. Landlord represents that the air-conditioning (if any) in the
Demised Premises is in working order on Commencement Date #1 or Commencement
Date #2 (as the case may be) and, thereafter, Landlord, at its sole cost and
expense, shall maintain and repair the air-conditioning unit in the Demised
Premises. Notwithstanding anything to the contrary contained in the foregoing,
Tenant shall procure, in a prompt and diligent manner at its sole cost and
expense, a service contract for any supplemental unit installed in the Premises
by Tenant, and supply a copy of same to Landlord and its managing agent. In
addition, Tenant acknowledges and agrees that all unit(s) within the Premises
(whether now existing or hereinafter installed by either party) are the property
of Landlord, and shall remain at the Demised Premises upon the termination of
this Lease.
56. Guaranty. Intentionally Deleted.
57. Landlord's Managing Agent. Tenant agrees that all of the
representations, warranties, waivers and indemnities made in this Lease by
Tenant for the benefit of Landlord shall also be deemed to inure and to be for
the benefit of CRG Management, LLC, its officers, directors, employees and
independent contractors.
58. Cancellation. As long as this Lease is in full force and effect and
the Tenant is in actual occupancy of not less than one hundred (100%) percent of
the Demised Premises (i.e., there are no subtenants or assignees), Tenant shall
have the one (1) time right, to be exercised by an unconditional and unequivocal
written notice (the "Election Notice") received by Landlord not later than the
date which is nine (9) months prior to the seventh (7th) anniversary of
Commencement Date #2 to elect to terminate and cancel the remaining term of this
Lease to the Demised Premises effective on the seventh (7th) anniversary of the
Lease ("Cancellation Date"). Once exercised, the Cancellation Date shall be
deemed to be the Expiration Date as if same were originally set forth herein.
The Election Notice shall expressly refer to this Article of this Lease. In
order for the Election Notice to be effective, Tenant shall continue to pay, in
a timely manner, all Base Rent and Additional Rent to the Landlord through the
Cancellation Date. In addition to the foregoing, in order for the Election
Notice to be effective, Tenant shall, no less than six (6) months prior to the
Cancellation Date, submit a check to Landlord, representing Landlord's
unamortized costs of (i) brokerage commissions, (ii) all free rent concessions,
(iii) Tenant Improvement Costs, including the "Premises #1 Improvement
Allowance" and the Office Improvement Allowance, as defined in Exhibit "E"
annexed hereto, (iv) Landlord's Work, as defined in Exhibit "E", (v) Landlord's
reasonable legal fees incurred in connection with this Lease, (vi) the
Additional Space Improvement Allowance as defined in Article 61 hereinafter and
(vii) any other work or contribution made by Landlord pursuant to Article 61
hereinafter. In the event the Tenant shall elect not to terminate this Lease as
provided for in this Article, all the terms, covenants, and conditions of this
Lease shall remain in effect and unmodified.
59. Option to Renew. A. If Tenant is in actual occupancy of the Premises
(i.e., Tenant has not assigned this Lease [other than to an affiliate,
subsidiary or parent of Tenant] or sublet any portion greater than fifty percent
[50%] of the Premises other than to an affiliate, subsidiary or parent of
Tenant), and if immediately prior to the expiration of the term of the Lease,
said Lease shall be in full force and effect and Tenant is not in default under
any of the provisions contained herein (beyond all applicable notice and grace
periods) and further provided Tenant, not less than one (1) year prior to the
expiration of the initial Lease term, shall have given Landlord written notice
of the election of Tenant to accept a renewal of the Lease, then Landlord shall
grant to Tenant and Tenant shall accept a renewal of the Lease. Said renewal
shall be for a further term of five (5) years from the date of expiration of the
term ("Renewal Term") and shall be on the same covenants, agreements, terms and
provisions as provided for in this Lease Agreement, including the payment of
Additional Rent, except that the Base Rent for the Renewal Term shall be fixed
by agreement not later than four (4) months prior to the date on which the first
monthly installment of such Base Rent shall first become payable or, if Landlord
and Tenant cannot agree by that time, then by arbitration pursuant to the
provisions of Article 60 hereof at 100% of the then fair market value ("Renewal
FMV") of the Demised Premises for the Renewal Term exclusive of fixtures,
equipment and improvements installed or erected by or on behalf of Tenant, but
not less than Tenant's then net effective rental (Base Rent plus escalations as
provided for in Articles 1.15 and 4 and of this Lease, annualized) as of the
expiration date of the First Renewal Term. If the Base Rent for the Renewal Term
shall not have been fixed on or prior to the date the same shall first become
payable, Tenant shall pay an interim rental at the rental rate last in effect
until the arbitration shall have been completed, after which Landlord and Tenant
shall make appropriate adjustment of such interim rent, such adjustment to be as
of the commencement date of the Renewal Term. In the event that Renewal FMV is
applied, Tenant shall receive a new Base Tax Year, which shall be the
- 37 -
<PAGE>
calendar tax year starting January 1, 2010 and ending December 31, 2010
(however, the provisions of Article 4F shall not apply) and the Base Rent shall
increase annually as provided for in Article 1.15 of this Lease.
60. Arbitration. The party desiring arbitration as provided in Article 59
hereof shall give written notice to that effect to the other party, specifying
in said notice the name and address of the person designated to act as
arbitrator on its behalf. Within fifteen (15) days after the service of such
notice, the other party shall give written notice to the first party, specifying
the name and address of the person designated to act as arbitrator on its
behalf. Each arbitrator chosen pursuant to this Article 60 shall be a member of
the American Institute of Real Estate Appraisers, and shall have at least ten
(10) years of real estate appraisal experience within the City of Newark. The
arbitrators so chosen shall meet within ten (10) days after the second
arbitrator is appointed, and if, within thirty (30) days after the second
arbitrator is appointed, said arbitrators shall not agree upon the question in
dispute, they shall each set forth their determination of Renewal FMV and
themselves appoint a third arbitrator; and in the event of their being unable to
agree upon such appointment within ten (10) days after the time aforesaid, the
third arbitrator shall be selected by the parties themselves if they can agree
thereon with a further period of fifteen (15) days. If the parties do not so
agree, then either party, on notice to the other, may request such appointment
by the then President of the Real Estate Board of Newark (or its equivalent or
any organization successor thereto), or in his absence, failure, refusal or
inability to act, then either party, on notice to the other, may apply to the
Superior Court in the County of Essex for the appointment of such third
arbitrator and the other party shall not raise any question as to the Court's
full power and jurisdiction to entertain the application and make the
appointment. The third arbitrator shall determine the Renewal FMV by selecting
the Renewal FMV proposed by one of the other arbitrators, and such shall be the
Renewal FMV. The decision of the arbitrator so chosen shall be given within a
period of thirty (30) days after the appointment of such third arbitrator.
61. Right of First Refusal. At any time during the period beginning with
Commencement Date #1, provided that this Lease shall be in full force and effect
and Tenant not in default under any of the provisions contained herein (beyond
all applicable notice and grace periods), Landlord agrees to give Tenant written
notice of any offer ("Expansion Notice") Landlord may receive for the leasing of
the contiguous space on the tenth (10th) floor of the Building ("Additional
Space"). Tenant, within five (5) business days of the delivery of said notice
(time being of the essence), shall notify the Landlord whether it wishes to
lease the Additional Space. The term of the Lease for the Additional Space shall
be for the remaining term of this Lease, on the same covenants, agreements,
terms and provisions as provided for in this Lease Agreement, including the
payment of Additional Rent, except that:
(i) Tenant acknowledges that it shall be taking the Additional Space "as
is", but for Landlord (a) abating any asbestos within the Additional Space in
accordance with applicable law and (b) providing Tenant with either, at
Landlord's sole option (1) an improvement allowance of $35.00 per square foot
for the Additional Space to improve the Additional Space with Landlord having no
responsibility to delivering a central HVAC system, ductwork and control wiring
for the Additional Space, which shall be Tenant's sole responsibility to provide
and install or (2) an improvement allowance of $30.00 per square foot for the
Additional Space to improve the Additional Space with Landlord having the
responsibility to delivering a central HVAC system (exclusive of ductwork and
control wiring, which shall be provided by Landlord but included in the
Additional Space Improvement Allowance). Regardless of which option Landlord
exercises, the foregoing contribution shall be referred to as the Additional
Space Improvement Allowance, and same shall be paid to Tenant in the same manner
as the Premises #1 Improvement Allowance (as hereinafter defined) is paid to
Tenant pursuant to Exhibit E. Notwithstanding anything to the contrary contained
in the foregoing, the Additional Space Improvement Allowance for the Additional
Space shall be reduced pro-rata for each and every day that the commencement
date of the term for the Additional Space begins beyond Commencement Date #2;
(ii) the Base Rent for the Additional Space shall be the Base Rent then
payable (on a per square foot basis) for Premises #2, subject to and including
all adjustments and escalations as provided for in this Lease; and
(iii) provided Tenant is not in monetary or material nonmonetary default
under the terms, covenants and conditions of this Lease (beyond the expiration
of any applicable notice and cure period) Tenant shall have the right to use and
occupy the Additional Space free of Base Rent, for a period beginning with the
commencement date of the term for the Additional Space through and including the
following four (4) months thereafter (the "Additional Space Free Rent Period")
[but Tenant shall pay all Additional Rent and any direct charges attributable to
the Additional Space during the Additional Space Free Rent Period].
Notwithstanding anything to the contrary contained in the foregoing
- 38 -
<PAGE>
sentence, the Additional Space Free Rent Period shall be reduced pro-rata for
each and every day that the commencement date of the term for the Additional
Space begins beyond Commencement Date #2.
In the event Tenant so elects, Landlord and Tenant shall immediately
thereafter enter into an amendment of this Lease to reflect the expansion of the
Premises to include the Additional Space. Tenant acknowledges and agrees that in
the event Tenant elects to not lease the Additional Space as provided for
herein, Tenant shall thereafter waive any and all future rights to receive an
Expansion Notice to lease the Additional Space.
If, at any time during the period beginning with Commencement Date
#1 through and including eighteen (18) months thereafter, and provided that this
Lease shall be in full force and effect and Tenant is not in default under any
of the provisions contained herein (beyond all applicable notice and grace
periods), Landlord agrees to give Tenant written notice of any bona-fide offer
("Fifth [5th] Floor Expansion Notice") Landlord may receive for the leasing of
the availability of space on the fifth (5th) floor of the Building ("Additional
Expansion Space"). Tenant, within five (5) business days of the delivery of said
notice (time being of the essence), shall notify the Landlord whether it wishes
to lease the Additional Expansion Space pursuant to the terms and provisions of
this Article. The term of the Lease for the Additional Expansion Space shall be
for the remaining term of this Lease and on the same covenants, agreements,
terms and provisions as provided for in the this Lease Agreement and the Fifth
[5th] Floor Expansion Notice, except as otherwise provided for herein.
Notwithstanding anything to the contrary contained in the foregoing, in no event
shall the Base Rent payable by Tenant for the Additional Expansion Space be less
than the greater of the (i) Base Rent then payable (on a per square foot basis)
for Premises #2, subject to and including all adjustments and escalations as
provided for in this Lease and (ii) the then fair market value for the
Additional Expansion Space. As to any free rent concession or Landlord
contribution to build-out the Additional Expansion Space, Landlord and Tenant
agree Tenant shall not receive any amount in excess of that provided to Tenant
under this Lease on a per square foot basis. If Landlord and Tenant cannot agree
within the five (5) day period as to the fair market value, then same shall be
decided by arbitration pursuant to the provisions of Article 60 hereof at 100%
of the then fair market value ("Renewal FMV") of the Demised Premises for the
Renewal Term exclusive of fixtures, equipment and improvements installed or
erected by or on behalf of Tenant, but not less than Tenant's then net effective
rental (Base Rent plus escalations as provided for in Articles 1.15 and 4 of
this Lease, annualized) as of the expiration date of the First Renewal Term.
62. Generator. Landlord currently intends to erect a "generator farm"
("Farm"), at a location on or adjacent to the Building's loading dock, for the
housing of tenant generators. Tenant acknowledges and agrees that the erection
of the Farm is not an obligation of Landlord under this Lease and Tenant shall
have no rights under this Lease, at law or in equity, to compel Landlord to
erect such Farm. In the event that Landlord erects such Farm, Landlord shall (i)
construct a steel structure (or other type of structure) on which a generator of
up to 750 KVA can be installed ("Generator") and (ii) install a diesel fuel tank
and ancillary equipment (to be used, if possible, in common with other
generators located in the Farm) in a concrete vault with sufficient capacity to
supply fuel for up to twenty-three (23) hours of operation (subject however, to
Tenant's load requirement) and which shall be metered to measure Tenant's
individual usage. In addition, Tenant shall pay to Landlord, within ten (10)
days of Landlord's written request therefor accompanied by supporting invoices,
(i) the cost for the tank and all costs associated with installation thereof and
(ii) Tenant's pro-rata share of the total cost of the steel (or other)
structure, including any installation costs relating thereto. In no event shall
Tenant's installation costs under this Section 62 exceed $62,500.00. In addition
to Tenant being responsible for any fuel usage and the aforesaid installation
costs, Tenant shall be charged a fee of $1 500.00 per month, as Additional Rent,
for use of the Farm. Under the supervision of Landlord and at Tenant's sole cost
and expense, Tenant shall (i) complete the installation of the Generator and
(ii) the connection of the electricity from the Generator to the Premises in
accordance with all of the provisions of Article 54 herein, the plans and
specifications therefor approved by Landlord and any other reasonable rules and
regulations of the Building. Tenant shall also be responsible for the cost of
the installation, service, repair, replacement and maintenance of the Generator
and related equipment, cabling, conduits, wire and transfer switches and for any
repair or damage caused by the Generator or by Tenant or any of its employees,
agents, contractors or invitees, and the Generator shall be treated as if the
Generator were part of Tenant's personal property located within the Premises.
Without limiting the generality of the foregoing, all provisions of this Lease
with respect to Tenant's alterations and Tenant's obligations to comply with
laws and insurance requirements, maintaining insurance, indemnifying Landlord
and performing repairs and maintenance shall apply to Tenant's installation, use
and maintenance of the Generator. Tenant shall maintain the Generator in good
order and repair and Tenant, its employees, agents and contractors shall have
access to the Farm for the purposes
- 39 -
<PAGE>
of installation, maintenance and repair of Tenant's Generator at reasonable
times, which times (except in the case of emergency) shall be arranged in
advance with Landlord. Landlord or its representatives may accompany Tenant
whenever Tenant, its employees, agents or contractors enter the Farm.
Notwithstanding the foregoing to the contrary, Tenant's right to install,
operate and maintain the Generator shall be subject to (i) Landlord's
construction of such Farm and (ii) Tenant obtaining all necessary governmental
permits and approvals required for the installation and operation of the
Generator, including, without limitation, all federal, state and local permits
and approvals, which permits and approvals shall remain in effect at all times
that the Generator is located in the Farm. Landlord shall have the right to, or
to require Tenant to, move the Generator to another location designated by
Landlord or to cease the operation of the Generator by Landlord and to remove
same if the Generator shall be in violation of applicable law or shall interfere
with the use and operation of other facilities. Tenant acknowledges that any
testing of the Generator shall only take place after normal business hours of
the Building.
63. Satellite Dish. Subject to all applicable federal, state and local
laws, and as well as the rules of any governmental or quasi-governmental agency
or authority, Tenant shall have the non-exclusive right, at its sole cost and
expense, to install, service, maintain and replace during the term of the Lease
one (1) eighteen inch (18") satellite dish (the "Antenna") for their use and not
for use by any other party. Said antenna must be located on a setback of the
Building (to be determined by Landlord) and not on the roof of the Building.
Prior to any such installation, Tenant shall deliver to Landlord for its review
and approval, which approval shall not be unreasonably withheld or delayed, a
set of scaled and dimensioned plans and specifications for the Antenna, which
shall include, without limitation, the location of the Antenna, the floor and
power load requirements of the Antenna, and the location and kind of electrical
or other services to and from the Antenna and detailed specifications of the
means of attaching the Antenna. In installing the Antenna, Tenant shall not be
permitted to penetrate the setback, but shall be permitted to anchor the Antenna
to the setback using concrete blocks or other weights, subject to the setback
load requirements. Wiring for the Antenna shall be through existing sleeve
installed in the Building by Landlord (if any). In the event there are no
sleeves, Tenant shall install same, at its own cost and expense. Tenant agrees
that the Antenna shall not be suffered or permitted to materially interfere with
the use and operation of other facilities or equipment now or hereafter located
on or in the Building and Landlord shall not be liable for interference with the
use and operation of the Antenna by reason of the existence and operation of
other satellite antennae or antennae or related equipment on or in the Building.
Tenant shall complete the installation of the Antenna in accordance with the
plans and specifications therefor approved by Landlord. The area in which Tenant
installs the Antenna shall be treated for all purposes of this Lease relating to
Tenant's obligations and liabilities as if the same were part of the Premises
(except that Tenant shall not be required to pay rent therefor). Tenant shall be
responsible for the cost of the installation, service, repair, replacement and
maintenance of the Antennae and related equipment and cabling and for any repair
or damage caused by the Antenna or by Tenant or any of its employees, agents,
contractors or invitees, and the Antenna shall be treated as if the Antenna were
part of Tenant's personal property located within the Premises. Without limiting
the generality of the foregoing, all provisions of this Lease with respect to
Tenant's alterations and Tenant's obligations to comply with laws and insurance
requirements, maintaining insurance, indemnifying Landlord and performing
repairs and maintenance shall apply to Tenant's installation, use and
maintenance of the Antenna. Upon termination of this Lease, Tenant shall, at its
own cost and expense, remove the Antenna and related equipment and cabling and
repair any damage caused thereby. All electricity used in connection with the
Antenna shall be metered, for which Tenant shall install and pay for the
necessary meters and for the cost of electricity consumed. Tenant shall maintain
the Antennae in good order and repair and Tenant, its employees, agents and
contractors shall have access to the setback for the purposes of installation,
maintenance and repair of Tenant's Antenna at reasonable times, which times
(except in the case of emergency) shall be arranged in advance with Landlord.
Landlord or its representatives may accompany Tenant whenever Tenant, its
employees, agents or contractors enter on the setback of the Building.
Notwithstanding the foregoing to the contrary, Tenant's right to install,
operate and maintain the Antenna shall be subject to Tenant obtaining all
necessary governmental permits and approvals required for the installation and
operation of the Antenna, including, without limitation, all federal, state and
local permits and approvals, which permits and approvals shall remain in effect
at all times that the Antenna is located on the setback of the Premises.
Landlord shall have the right to, or to require Tenant to, move the Antennae to
another location designated by Landlord or to cease the operation of the
Antennae by Landlord and to remove same if the Antennae shall be in violation of
applicable law or shall interfere with the use and operation of other facilities
or equipment now or hereafter located at or within the Building, without
liability to Tenant therefor.
- 40 -
<PAGE>
64. Letter of Credit: Amending and/or supplementing the provisions of
Articles 1.9, 3.1, 3.4 and 19.6 of the Lease:
In lieu of the cash security deposited with Landlord upon the
execution of this Lease, Tenant may at any time (provided Tenant is not in
default under this Lease beyond any applicable notice and cure period) deliver
to Landlord and shall, except as otherwise provided herein, maintain in effect
at all times during the term hereof, an irrevocable, self-renewing letter of
credit, in the form that follows hereinafter, in the amount of $325,000.00 (such
letter of credit is hereinafter referred to as a "Security Letter" or "Letter of
Credit"). The Security Letter shall issued by a banking corporation reasonably
satisfactory to Landlord and having its principal place of business or its duly
licensed branch or agency in either the (i) City and State of New York or (ii)
the City of Newark and State of New Jersey. The letter of credit shall: (i) be
clean, irrevocable, unconditional and non-negotiable, except by Landlord; (ii)
be for an initial term of not less than one (1) year; (iii) provide that
Landlord shall be entitled to draw upon the letter of credit upon presentation
of a sight draft; and (iv) provide that the letter of credit shall be deemed
automatically renewed, without amendment, for consecutive periods of one (1)
year, each year during the term of this Lease, and for a ninety (90) day period
thereafter unless the bank shall notify Landlord and Landlord's attorneys by
registered mail, return receipt requested, not less than thirty (30) days
preceding the then expiration date of the letter of credit, that the bank elects
not to renew such letter of credit, in which event Landlord shall have the
right, by sight draft presented to the bank, to receive the monies represented
by the then existing letter of credit and to hold and apply such proceeds in
accordance with the provisions hereof. In the event that Landlord uses, applies
or retains any portion of the proceeds of the letter of credit, Tenant shall
forthwith restore the amount so applied or retained in cash or by good certified
check so that, at all times (except as otherwise provided for in this Lease),
subject to the provisions herein set forth, the amount of the letter or credit
or cash security, as the case may be, shall be $325,000.00, or such other amount
as provided for hereinafter.
In the event Tenant defaults in the respect of any of the terms,
provisions, covenants and conditions of this Lease beyond applicable notice and
cure periods, including but not limited to, the payment of annual Base Rent,
Additional Rent and any Tenant surcharges, Landlord may use, apply or retain the
whole or any part of the security so deposited to the extent required for the
payment of any Annual Base Rent, Additional Rent or Tenant surcharges or any
other sum as to which Tenant is in default or for any sum which Landlord may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, provisions, covenants, and conditions of this Lease,
including, but not limited to, any damages or deficiency accrued before or after
summary proceedings or other re-entry by Landlord. To insure that Landlord may
utilize the security represented by the Security Letter in the manner, for the
purposes and to the extent provided herein, each Security Letter shall provide
that the full amount thereof may be drawn down by Landlord upon the presentation
to the issuing bank of Landlord's draft drawn on the issuing bank accompanied by
the signed memorandum of Landlord indicating in substance the basis for
Landlord's charge against the security. A copy of such memorandum shall be
simultaneously furnished to Tenant; provided, however, that such memorandum as
so presented shall be absolutely binding and unconditional on said issuing bank.
Landlord's right to draw down under said Security Letter shall, upon such
presentation, also be absolute as against Tenant, provided Tenant has defaulted
in respect of any of the terms, provisions, covenants and conditions of this
Lease beyond applicable notice and cure periods.
In the event that Tenant defaults, after notice and the opportunity to
cure as provided for in the Lease, in the respect of any of the terms,
provisions, covenants and conditions of the Lease and Landlord utilizes all or
any part of the security represented by the cash security deposit or the
Security Letter but does not terminate this Lease as provided herein, Landlord
may in addition to exercising its rights as provided herein, retain the
un-applied and unused balance of the principal amount of the cash security
deposit or the Security Letter as security for the faithful performance and
observance by Tenant thereafter of the terms, provisions and conditions of this
Lease and may use, apply or retain the whole or any part of said balance to the
extent required for payment of annual Base Rent, Additional Rent or Tenant
surcharges, or any other sum as to which Tenant is in default or for any sum
which Landlord may expend or be required to expend by reason of Tenant's default
in respect to any of the terms, covenants, and conditions of this Lease. In the
event Landlord applies or retains any portion or all of the security delivered
hereunder, Tenant shall not only forthwith restore the amount so applied or
retained so that at all times the amount deposited shall not be less than the
security required by the first paragraph hereof or such adjusted amount as may
be set forth hereinafter,
- 41 -
<PAGE>
but shall also immediately deposit with Landlord one (1) additional month of
security based upon the monthly installment of Base Rent then payable to
Landlord.
Except as otherwise provided for herein, provided Tenant shall not be in
default beyond applicable notice and cure periods, the security shall be
promptly returned to Tenant (along with any interest accrued on any cash portion
thereof) after the Lease Expiration Date and upon delivery of entire possession
of the Premises to Landlord as required under the Lease. In the event of an
assignment of the Lease or other transfer by Landlord, Landlord shall have the
right to transfer any interest it may have in the security to the assignee and
Landlord shall thereupon be released by Tenant from all liability for the return
of such security, provided such assignee assumes any responsibilities of
Landlord with respect to such security, and Tenant agrees to look solely to the
new Landlord for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Landlord.
If at any time the issuer bank shall fail to honor the sight draft of
Landlord (or its successor-in-interest) on demand, or the issuer fails to remain
a member of the New York Clearing House Association or its assets shall become
less that $500 million, Landlord may demand of Tenant that Tenant replace such
letter of credit with its cash equivalent or with a letter of credit from a
commercial bank reasonably acceptable to Landlord, at Landlord's option, and
Tenant shall replace same within ten (10) business days thereafter.
Time is of the essence with respect to all the dates and time period
herein within which Tenant and any issuer of a letter of credit may pay and/or
perform. In the event Landlord improperly draws on the Letter of Credit, then
upon it being determined that such draw down was improper, Landlord shall
immediately pay Tenant the amount improperly drawn.
Notwithstanding anything to the contrary contained in this Lease, and
provided that (a) this Lease is in full force and effect and Tenant shall not
have been in monetary or material nonmonetary default of this Lease (beyond the
expiration of any applicable notice and cure period) and (b) Tenant shall have
made all payments of Base Rent and Additional Rent payable under the Lease in a
timely manner, then Tenant may provide to Landlord (and Landlord shall promptly
thereafter execute and deliver to Tenant, if necessary) such instruments and
authorizations as may be reasonably required by the issuer of the Security
Letter to reduce the face amount thereof by $125,000.00 to $200,000.00 as of the
third (3rd) anniversary of Commencement Date #2.
Notwithstanding anything to the contrary contained in this Lease, and
provided that (a) this Lease is in full force and effect and Tenant shall not
have been in monetary or material nonmonetary default of this Lease (beyond the
expiration of any applicable notice and cure period) and (b) Tenant shall have
made all payments of Base Rent and Additional Rent payable under the Lease in a
timely manner, then Tenant may provide to Landlord (and Landlord shall promptly
thereafter execute and deliver to Tenant, if necessary) such instruments and
authorizations, as may be reasonably required by the issuer of the Security
Letter to reduce the face amount thereof (assuming the amount thereof has
already been reduced as provided for in the preceding paragraph) by an
additional $100,000.00 to $100,000.00 as of the fifth (5th) anniversary of
Commencement Date #2.
For purposes of this Article 64, payments of Base Rent shall not be deemed
to have been made in a timely manner if such payments are made more than ten
(10) days after such payments become due and payable more than twice in any
twelve (12) month period.
FORM OF LETTER OF CREDIT REQUIRED
(See Exhibit "H" annexed hereto)
- 42 -
<PAGE>
65. Other Definitions.
A. "Premises #1" shall mean the portion of the Premises which is to
be used as laboratory space, as more clearly described in Exhibit A
attached hereto.
B. "Premises #2" shall mean the portion of the Premises which is to
be used as general and administrative offices, as more clearly described
in Exhibit A attached hereto.
C. "Demised Premises" and "Premises" shall mean Premises #1 and
Premises #2, collectively.
Special Provisions. The special provisions attached hereto as Exhibit "D"
and incorporated herein by reference, if any, shall control if in conflict with
any of the foregoing provisions of this Lease.
SIGNED, SEALED AND DELIVERED as of the date first above written.
WITNESSES: TENANT:
________________________________ BROADVIEW NETWORKS HOLDINGS, INC.
Print name: By: /s/ Scott Matukas
--------------------------------
Title: VP-Admin
--------------------------------
Tenant's Employer Identification Number: 11-3310798
Date Executed: 3/16/00
By the execution and delivery of this Lease, Tenant has made and shall be
deemed to have made a continuous and irrevocable offer to lease the Premises, on
the terms contained in this Lease, subject only to acceptance by Landlord (as
evidenced by Landlord's signature hereon), which Landlord may accept in its sole
and absolute discretion.
WITNESSES: LANDLORD:
________________________________ 744 ELROY INVESTORS LLC
Print name:
By: 744 Broad Investors LLC, Managing Member
By: /s/ Peter J. Marsh, Managing Member
------------------------------------
Peter J. Marsh, Managing Member
Date Executed: 3/17/00
- 43 -
<PAGE>
EXHIBIT "A"
FLOOR PLAN
<PAGE>
[FLOOR PLAN OMITTED]
EXHIBIT "A"
Hillier [LOGO]
744 Broad Street
10TH Floor Plan
(SHADED AREA IS "PREMISES)
Page 1 of 2
<PAGE>
[FLOOR PLAN OMITTED]
EXHIBIT "A"
Hillier [LOGO]
744 Broad Street
10TH Floor Plan
Page 2 of 2
<PAGE>
EXHIBIT "B"
Memorandum Confirming Term
THIS MEMORANDUM ("Memorandum") is made as of __________,2000 between 744
Elroy Investors LLC ("Landlord") and BROADVIEW NETWORKS HOLDINGS, INC. , a New
Jersey __________ ("Tenant"), pursuant to that certain Lease Agreement between
Landlord and Tenant dated as of March 1, 2000 (the "Lease") for the Premises
located at the 10th Floor, 744 Broad Street, Newark, New Jersey 07102 (the
"Premises"), and more particularly described in the Lease. All
initial-capitalized terms used in this Memorandum have the meanings ascribed to
them in the Lease.
1. Landlord and Tenant hereby confirm that:
(a) Commencement Date #1 of the Lease Term is __________, 2000;
(b) Commencement Date #2 of the Lease Term is ___________, 2000;
(c) The expiration date of the Lease Term is _________________;
and
(d) The date Base Rent for Premises #1 commences under the Lease
is ______, 2000.
(e) The date Base Rent for Premises #2 commences under the Lease
is _________ 1, 2000.
2. Tenant hereby confirms that:
(a) All commitments, arrangements or understandings made to induce
Tenant to enter into the Lease have been satisfied;
(b) All space and improvements have been completed and furnished
in accordance with the provisions of the Lease; and
(c) Tenant has accepted and is in full and complete possession of
the Premises.
3. This Memorandum shall be binding upon and inure to the benefit of the
parties and their permitted successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Memorandum as of the
date first set forth above.
LANDLORD: TENANT:
744 ELROY INVESTORS LLC BROADVIEW NETWORKS HOLDINGS, INC
By: 744 Broad Investors LLC, By: ______________________________
Managing Member
Title:________________________
By: _______________________________
Peter J. Marsh, Managing Member
<PAGE>
EXHIBIT "C"
Attached to and made part of a
Lease Agreement dated: March 15, 2000
Landlord: 744 ELROY INVESTORS LLC
Tenant: BROADVIEW NETWORKS HOLDINGS, INC.
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the Project, the Common Facilities associated therewith,
if any, the land situated beneath the Building and the appurtenances thereto:
1. No sign, door plaque, directory strip, advertisement or notice shall be
displayed, painted or affixed by Tenant, its officers, agents, servants,
employees, patrons, licensees, customers, visitors or invitees in or on any part
of the outside or inside of the Premises, Building, Project or Common Facilities
without the prior written consent of Landlord and then only of such color, size,
character, style and material, and in such places as shall be approved and
designated by Landlord. In the event of the violation of the foregoing by
Tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to Tenant. Signs on entrance doors to the
Premises and directories shall be placed thereon by a contractor designated by
Landlord and shall be paid for by Tenant. Tenant shall be entitled to its
proportionate share of listings on the directory in the lobby of the Building.
2. Landlord will furnish Tenant with two (2) keys to the entrance doors of
the Premises, and Tenant will furnish Landlord with keys or other methodology to
all additional locks or bolts placed on the entrance doors to the Premises.
Landlord may at all times keep a pass key to the Premises.
3. Tenant, its officers, agents, agents, servants, employees, patrons,
licensees, customers. contractors, visitors, or invitees shall not block or
obstruct any of the entries, passages, doors, elevators, elevator doors,
corridors, hallways or stairways of the Building, Project or Common Facilities
or place, empty or throw away rubbish, litter, trash or material of any nature
in such areas, or permit such areas to be used at any time except for ingress or
egress of Tenant, its officers, agents, servants, employees, patrons, licensees,
customers, visitors or invitees.
4. Glass panel doors that reflect or admit into the passageways, or into
any place in the Building outside of the Premises, shall not be covered or
obstructed by Tenant, and Tenant shall not permit, erect and/or place solar
reflective film, drapes, curtains, blinds, shades, screens, furniture, fixtures,
shelving, display cases, tables, lights, signs or advertising devices in front
of, or in the proximity of any interior or exterior windows, glass panels or
glass doors that provide a view into the interior of the Premises, unless same
shall have first been approved in writing by Landlord.
5. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any bulky material, merchandise or materials
which requires the use of elevators or stairways, or movement of materials
through the Building entrances or lobby shall be restricted to such hours as
Landlord shall reasonably designate. All such movement shall be under the
supervision of Landlord and in the manner agreed between Tenant and Landlord by
prearrangement before performance. Such prearrangement initiated by Tenant will
include determination by Landlord, and subject to its decision and control, as
to the time, method, and routing of movement and as to limitations for safety or
other concern which may prohibit any article, equipment or any other item from
being brought into the Building. Tenant shall assume all risks as to the damage
to articles moved and injury to persons or public engaged or not engaged in such
movement, including equipment, property and personnel of Landlord if damaged or
injured as a result of acts in connection with carrying out this service for
Tenant from the time of entering the Project to completion of work; and Landlord
shall not be liable for acts of any person engaged
- 3 -
<PAGE>
in, or any damage or loss to any of said property or persons resulting from, and
act in connection with such service performed for Tenant.
6. Tenant is cautioned in purchasing furniture and equipment that the size
is limited to such as can be placed in the elevator and will pass through the
doors to the Premises. Large pieces should be made in parts and set up in the
Premises. Landlord reserves the right to refuse to allow to be placed in the
Building, any furniture or equipment of any description which does not comply
with the above conditions. Landlord shall have the power to reasonably prescribe
the weight and position of safes and other heavy equipment or items, which shall
in all cases, to distribute weight, stand on supporting devices reasonably
approved by Landlord. All damages done to the Building by the installation or
removal of any property of Tenant, or done by Tenant's property while in the
Building, shall be repaired at the expense of Tenant. Tenant shall notify the
Building manager when safes or other heavy equipment are to be taken in or out
of the Building, and the moving shall be done under the supervision of the
Building manager, after written permission from Landlord. Persons employed to
move such property must be acceptable to Landlord.
7. There shall not be used in any space, or in the Common Facilities of
the Building, either by Tenant, or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except with rubber tires and side
guards.
8. All contractors and/or technicians performing work for Tenant within
the Premises, Building, Project, or Common Facilities, shall be referred to
Landlord for reasonable approval before performing such work. This shall apply
to all work including, but not limited to, installation of telephones, telegraph
equipment, electrical devices and attachments, and all installations affecting
floors, walls, windows, doors, ceilings, equipment, or any other physical
feature of the Premises, Building, Project or Common Facilities. None of this
work shall be done by Tenant without Landlord's prior written approval. Should
Tenant require telegraphic, telephone, annunciator or other communication
service, Landlord will direct the electrician where and how wires are to be
introduced and placed and none shall be introduced or placed except as Landlord
shall direct. Electric current shall not be used for power of heating without
Landlord's prior written permission.
9. Except as otherwise provided in this Lease, Tenant, its officers,
agents, servants or employees shall do no painting or decorating in the
Premises; or mark, paint or cut into, drive nails or screw into, nor in any way
deface any part of the Premises or Building without the prior written consent of
Landlord. If Tenant desires signal, communication, alarm or other utility or
service connection installed or changed, such work shall be done at expense of
Tenant, with the reasonable approval and under the direction of Landlord.
10. All doors leading to the Premises from any corridors, passage or
hallway shall be kept closed at all times, except when someone is actually
entering or leaving the Premises.
11. Tenant, its officers, agents, servants and employees shall, before
leaving the Premises unattended, close and lock all doors and shut off all
utilities; any damage resulting from failure to do so shall be paid by Tenant.
12. Tenant, its officers, agents, servants or employees shall not make or
permit any improper, objectionable or unpleasant noises or odors in the Building
or otherwise interfere in any way with other tenants or persons having business
with them.
13. Tenant, its officers, agents, servants or employees shall not permit
any equipment or device within the Premises which will impair radio or
television broadcasting or reception from or in the Building, Project or Common
Facilities.
14. Tenant, its officers, agents, servants, employees, patrons, licensees,
customers, contractors, visitors or invitees shall not bring into the Premises,
Project or Common Facilities or keep on the Premises any fish, fowl, reptile,
insect or animal of any kind whatsoever without the prior written consent of
Landlord.
- 4 -
<PAGE>
15. Tenant, its officers, agents, servants or employees shall not use the
Premises, Building, Project or Common Facilities for housing, lodging or
sleeping purposes or (except as otherwise provided in this Lease), for the
cooking or preparation of food without the prior written consent of Landlord.
Notwithstanding the foregoing, Tenant shall be permitted to use a refrigerator
and microwave oven in its employee kitchen area.
16. Except as otherwise permitted herein, Tenant, its officers, agents,
servants and employees shall not install or operate any refrigerating, heating
or air conditioning apparatus (excluding Tenant's telecommunications equipment)
or other machinery of any kind, or carry on any mechanical operation (excluding
Tenant's telecommunications equipment), or bring into the Premises, Building,
Project or Common Facilities any inflammable, combustible or explosive fluid,
chemical, material or substance or Hazardous Material (except for household and
office cleaning supplies) without the prior written consent of Landlord.
17. No space in the Building, Project or Common Facilities shall, without
the prior written consent of Landlord, be used for manufacturing, public sales,
or for the storage of merchandise, or for the sale of merchandise, goods or
property of any kind, or auction.
18. The requirements of Tenant will be attended to only upon application
at the office of Landlord. Landlord's employees shall not perform any work or do
anything outside of their regular duties, unless under special instructions from
Landlord.
19. Plumbing, fixtures and appliances shall be used only for the purpose
for which designed, and no sweepings, rubbish, rags, Hazardous Material, or
other unsuitable material shall be thrown or placed therein. Damage resulting to
any such fixtures or appliances from misuse by Tenant or Tenant's agents,
employees or invitees, shall be paid by Tenant, and Landlord shall not in any
case be responsible therefore.
20. Tenant shall not permit the Premises to be used as a barber, beauty
manicure shop or employment bureau nor shall Tenant engage or pay any employee
from the Premises, except those employees actually working for Tenant on the
Premises, nor shall Tenant advertise for laborers giving an address of the
Premises, Building, Project or Common Facilities without the prior written
consent of Landlord.
21. Tenant shall keep the Premises neat and clean. Tenant shall not employ
any person for the purposes of such cleaning other than the cleaning and
maintenance personnel approved by Landlord.
22. In the event Tenant must dispose of crates, boxes, etc., which will
not fit into office wastepaper baskets, it will be the responsibility of Tenant
to dispose of same. In no event shall Tenant set such items in the public
hallways or other areas of the Building, or Project, excepting Tenant's own
Premises, for disposal.
23. Tenant will be responsible for any damage to the Premises, including
carpeting and flooring, as a result of rust or corrosion of file cabinets,
roller chairs, metal objects, or spills of any type of liquid.
24. Tenant shall not lay linoleum or other similar floor covering within
the Premises, without the prior written consent of Landlord.
25. Canvassing, soliciting and peddling in the Building, Project and
Common Facilities is prohibited and Tenant shall cooperate to prevent the same.
In this respect, Tenant shall promptly report such activities to Landlord.
26. Tenant, its officers, agents, employees, servants, patrons, customers,
contractors, licensees, invitees and visitors shall not solicit business nor
distribute handbills or other advertising matter in the Building, Project or
Common Facilities.
27. Landlord will not be responsible for lost or stolen personal property,
equipment, money or any article taken from the Premises, Building or Project,
regardless of how or when such loss occurs.
- 5 -
<PAGE>
28. No vending machine of any description shall be installed, maintained
or operated upon the Premises without the prior written consent of Landlord.
29. Neither Tenant, nor any officer, agent, employee, servant, patron,
customer, contractor, visitor, licensee or invitee of Tenant, shall go upon the
roof of the Building, without the written consent of the Landlord.
30. Tenant shall not install any antenna or aerial wires, radio or
television equipment, or any other type of equipment, outside of the Building,
without Landlord's prior written consent and upon such terms and conditions as
may be specified by Landlord in each and every instance.
31. Tenant shall not depict the Building in an offensive manner, use the
name of the Building or Project for any purpose other than that of the business
address of Tenant, or use any picture or likeness of the Building or Project, or
use the Building or Project name in any letterheads, envelopes, circulars,
notices, advertisements, containers or wrapping material, without prior express
written consent of Landlord in each and every instance, which shall not be
unreasonably withheld, delayed or conditioned.
32. Landlord reserves the right to close the Building to the public at
6:00 p.m., Monday through Friday, and at 1:00 p.m. on Saturday, subject however,
to Tenant's rights to access the Premises under the Lease, and to require that
persons entering the Building identify themselves and establish their right to
enter or to leave the Building.
33. Access to the Building, or the halls, corridors, elevators or
stairways to the Premises, may be refused from 1:00 p.m. Saturday to 8:00 am.
Monday, on holidays declared by the Federal Government, whenever the Building is
not open to the public and during Monday through Friday between the hours 6:00
p.m. and 8:00 am., unless the person seeking access has a pass or is properly
identified. Landlord shall in no case be liable for damages for the admission to
or exclusion from the Building of any person whom Landlord has the right to
exclude hereunder. Tenant's officers, agents, servants and employees shall be
permitted to enter and leave the Building whenever appropriate arrangements have
been previously made between Landlord and Tenant with respect thereto. Tenant
shall be responsible for all persons for whom Tenant requests such permission,
and shall be liable to Landlord for all acts of such persons. Any person whose
presence in the Building, Project or Common Facilities at any time shall, in the
reasonable judgment of the Landlord, be prejudicial to the safety, character,
reputation and interest of the Building or Project or its tenants may be denied
access to the Building, Project or Common Facilities or may be ejected
therefrom. In case of invasion, riot, public excitement or other commotion,
Landlord may prevent all access to the Building, Project or Common Facilities
during the continuance of the same, by closing the doors or otherwise, for the
safety of the Tenants, and protection of property in the Building, Project and
Common Facilities. Landlord may require any person leaving the Building with any
package or other object from the Premises to exhibit a pass from Tenant, but the
establishment and enforcement of such requirements shall not impose any
responsibility on Landlord for the protection of Tenant against the removal of
property from the Premises. Landlord shall in no way be liable to Tenant for
damages or loss arising from the admission, exclusion or ejection of any person
to or from the Premises, the Building, the Project or the Common Facilities
under the provisions of this rule.
34. Smoking is prohibited in all areas of the Building except where
expressly permitted by Landlord (if any such area is permitted). Landlord
reserves the right to relocate or eliminate any such areas where smoking is
permitted, at any time.
35. Any additional services not required under the Lease to be performed
by Landlord, which Tenant requests Landlord to perform and which are performed
by Landlord, shall be billed to Tenant at Landlord's reasonable cost plus ten
percent (10%).
- 6 -
<PAGE>
36. Tenant shall not clean nor require, permit, suffer or allow any window
in the Premises to be cleaned from the outside in violation of any applicable
law.
37. No carpet, rug or other article shall be hung or shaken out of any
window of the Building; and Tenant shall not sweep or throw or permit to be
swept or thrown from the Premises any dirt or other substances into any of the
corridors or halls, elevators or out of the doors or windows or stairway of the
Building.
38. Landlord reserves the right to rescind any of these rules and
regulations and to make such other and further rules and regulations as in its
sole judgment shall from time to time be deemed appropriate for the safety,
protection, care and cleanliness of the Building, the operation thereof, the
preservation of good order therein and the protection and comfort of the tenants
and their agents, employees and invitees, which rules and regulations, when made
and written notice thereof is given to Tenant, shall be binding upon it in like
manner as if originally herein prescribed.
- 7 -
<PAGE>
EXHIBIT "D"
Attached to and made part of
Lease Agreement dated: March 15, 2000
Landlord: 744 ELROY INVESTORS LLC
Tenant: BROADVIEW NETWORKS HOLDINGS, INC.
SPECIAL PROVISIONS
Landlord agrees that on or before July 31, 2000 it shall install
additional 4 inch (4") conduits into the basement of the Building. At such time,
Tenant will be granted the right to install its cabling within such conduit(s)
("Cabling") in return for (i) a payment by Tenant to Landlord of $7,500.00 per
conduit, not to exceed two (2) conduits, provided Landlord shall bring the
conduit to a telephone closet on the tenth (10th) floor and (ii) Tenant paying
Landlord, as Additional Rent, a monthly fee of $200.00 per conduit throughout
the term of this Lease and any extension thereof.
<PAGE>
EXHIBIT "E"
WORK LETTER AGREEMENT
Attached to and made part of
Lease Agreement dated: March 15, 2000
Landlord: 744 ELROY INVESTORS LLC
Tenant: BROADVIEW NETWORKS HOLDINGS, INC.
Tenant accepts the Premises in "as is" condition, except Landlord shall perform
the following work ("Landlord's Work"):
(i) At such time as the electricity capacity of the Building is upgraded
by the local provider, Landlord shall deliver to a location within
the Premises (to be determined by Landlord) the main switch panel in
the basement of the Building six hundred (600) amps of power for the
Premises (the "Required Amps"). Notwithstanding anything to the
contrary contained in this Lease, Tenant shall pay Landlord the sum
of $13,333.32 to partially reimburse Landlord for the cost of the
required Amps. In accordance the terms and provisions of this Lease,
Tenant, at it's sole cost and expense, shall be responsible for (i)
wiring and distributing the electrical capacity throughout the
Premises and (ii) having the local utility install a direct meter
and ancillary equipment to measure the electrical consumption.
Notwithstanding anything to the contrary contained in the foregoing,
Landlord shall provide six hundred (600) amps of power to the
Premises #1 by July 15, 2000 on a temporary basis until the
Building's capacity upgrade is completed.
(ii) Abate any asbestos in Premises #1 in accordance with applicable law.
(iii) Deliver Premises #1 broom clean and vacant, with Premises #1 demised
from the remainder of the Premises. Tenant agrees that it shall
provide Landlord with a design as to where the wall shall be demised
no later than March 20, 2000.
(iv) Abate any asbestos in Premises #2 in accordance with applicable law.
(v) Demise the Premises from the remainder of the tenth (10th) floor,
unless Tenant exercises it's rights under the first paragraph of
Article 61 of the Lease.
Tenant and Landlord are executing simultaneously herewith a Lease (the
"Lease") covering the space referred to above as more particularly described in
the Lease (the "Premises").
To induce Tenant to enter into the Lease and in consideration of the
mutual covenants in the Lease and this Agreement, Landlord and Tenant mutually
agree as follows
1. Tenant shall furnish Landlord with a space design plan ("Design Plan")
approved by Tenant no later than March 20, 2000 (the "Approval Date"). Based
upon the Design Plan and meetings with Landlord and Landlord's architect,
Landlord's architect will furnish Tenant (for Tenant's reasonable approval
and/or reasonable reasons for disapproval within five (5) business days of
Tenant's receipt thereof), with architectural drawings and such other
information as Landlord shall reasonably require ("Tenant Drawings"). The Tenant
Drawings shall be used by Landlord's architect to prepare all engineering
drawings (including drawings for electrical, mechanical, plumbing, and fire
protection systems), plans, specifications, and other materials (collectively,
"Working Drawings") necessary for construction of tenant improvements ("Tenant
Improvements") required by Tenant for the Premises and for the preparation of
all permit applications and construction documents relating to the Tenant
Improvements. If Tenant approves of the Design Plan on or before the Approval
Date, Tenant Drawings shall be furnished by
<PAGE>
Landlord or it's representatives to Tenant within fifteen (15) business days of
the Approval Date. Within five (5) business days of Tenant's receipt of the
Tenant Drawings, Tenant must provide Landlord or it's architect Tenant's
reasonable approval and/or reasonable reasons for disapproval thereof. Within
ten (10) business days of Tenant's approval of the Tenant Drawings, Landlord
shall provide Tenant, for Tenant's immediate and reasonable
approval/disapproval, electrical and lighting plans ("Electrical Plans"). The
Tenant Drawings initially shall include the information in the following
paragraphs (a) through (c). The information in paragraphs (d) through (j) shall
be submitted to Landlord by Tenant no later than ten (10) days of Tenant's
approval of the Electrical Plans, but in no event later than April 4, 2000).
a. Space utilization study and sufficient detail to prepare Working
Drawings.
b. Special loading requirements for heavy items such as the location of
special file cabinets and special equipment.
c. Openings in the walls.
d. Special electrical, air conditioning, or plumbing work.
e. Location and dimensions of telephone equipment rooms and telephone,
data and electrical outlets.
f. Locations and types of partitions, including doors and hardware.
g. Special cabinet work or other millwork items.
h. Variations to standard ceiling heights.
i. Color of painted areas.
j. Selection of floor coverings or any special wall coverings.
Note: Items "d" and "g", "special wall coverings" referred to in item "j" and
above standard floor coverings are not items considered to be included in the
Improvement Allowance (as defined hereafter) or the Landlord Work Letter
Description (as annexed hereto as Exhibit E-1).
1.1 The failure of Tenant or Tenant's Architect to respond within the time
periods referred to above shall be deemed to be approval of the Tenant Drawings
and Working Drawings, as the case may be. In the event either Tenant or Tenant's
Architect rejects the Working Drawings, Tenant's Architect shall advise Landlord
of the reasons for rejection. The cost and expense of revising the Working
Drawings shall be the responsibility of Tenant.
1.2 Within ten (10) business days following Tenant's written approval of
the Working Drawings, Landlord shall enter into a contract with the contractor
for construction of the Tenant Improvements.
1.3 Subject to the conditions appearing at the conclusion of this Article
1.3, Landlord agrees to provide Tenant an improvement allowance for Premises #1
of ONE HUNDRED SIXTY-FIVE THOUSAND EIGHT HUNDRED THIRTY DOLLARS ($165,830.00)
("Premises #1 Improvement Allowance") [4,738 square feet x $35.00 per square
foot] to be applied against any hard costs and expenses incurred or expended for
the completion of any Tenant Work relating to Premises #1.
The Premises #1 Improvement Allowance shall be paid by Landlord
directly to Tenant's contractor within forty-five (45) days of presentation to
Landlord of (i) invoices for the work performed; (ii) a letter signed by an
authorized officer of the Tenant stating that the work has been performed
correctly and that the amount billed is as provided for in the Tenant's
construction contract with the contractor submitting the bill; (iii)
certification by Landlord's or Tenant's architect, at Landlord's option, that
said work has been completed in accordance with the plans approved by Landlord
and all contracts between Tenant and the contractors, (iv) a General Release or
Lien Waiver signed by the Contractor(s) and subcontractor(s) of Tenant who have
performed the work for which they are being compensated and (v) copies of any
contract between Tenant and their contractor or subcontractor for which a
distribution is requested. Landlord does not act as the guarantor of any work
performed by any contractor employed by Tenant nor shall Landlord be
responsible, either directly or indirectly, for any work performed by said
contractor or subcontractor.
Subject to the conditions appearing at the conclusion of this
Article 1.3, Landlord agrees to provide Tenant an office improvement allowance
for Premises #2 of SIX HUNDRED TWO THOUSAND FOUR HUNDRED THIRTY DOLLARS
($602,430.00) ([20,081 square feet x $30.00 per square foot] (the "Office
Improvement
- 2 -
<PAGE>
Allowance") to be applied against any costs and expenses incurred or expended
for construction of the buildout by Landlord of Premises #2 in accordance with
the Exhibit E-1 specifications (the "Tenant Improvements"). Such costs and
expenses ("Tenant Improvement Costs") shall be deemed to include payment of
Landlord's architectural, engineering and design fees incurred on behalf of
Tenant for Premises #2, as well as project management fees to Landlord's
managing agent and all filing and permit fees. Landlord represents that,
provided the work requested of Landlord by Tenant does not exceed in any manner
that described to be delivered to Tenant pursuant to the provisions of Exhibit
E-1, the Tenant Improvement Costs shall not exceed the Office Improvement
Allowance. Tenant acknowledges and agrees that Tenant shall be solely
responsible for any architectural, engineering and design fees incurred on
behalf of Tenant to (i) Landlord's architects or engineers relative to Premises
#1 and (ii) Tenant's own architects or engineers relative to Premises #1 and
Premises #2.
Landlord represents that it shall inform Tenant, within ten (10)
business days of the approval by both parties of the Working Drawings, whether
or not the buildout of the Tenant Improvements for Premises #2 pursuant to the
Working Drawings results in the Tenant Improvement Costs exceeding the Office
Improvement Allowance (the "Additional Tenant Cost Notice"). If due to the
requests of Tenant the Improvement Costs do in fact exceed the Office
Improvement Allowance, Tenant shall within five (5) business days of Tenant's
receipt of the Additional Tenant Cost Notice, provide Landlord or it's architect
Tenant's reasonable approval of said additional costs and/or any reasonable
reasons for disapproval thereof. The failure of Tenant or Tenant's Architect to
respond within the foregoing time period shall be deemed to be approval of the
additional costs for which Tenant shall be responsible.
2. When Landlord is of the opinion that the Tenant Improvements are
substantially complete, then Landlord shall notify Tenant. Tenant agrees that
upon such notification, Tenant will promptly (and not later than five (5)
business days after the date of Landlord's notice) inspect the Premises and, if
applicable, furnish to Landlord a written statement that the Tenant Improvements
are substantially completed as required by the provisions of this Lease, with
the exception of certain specified and enumerated items, if any ("Punch List"),
of which Landlord must complete such Punch List items within thirty (30) days.
Tenant agrees that at the request of Landlord from time-to time thereafter,
Tenant will promptly furnish to Landlord revised Punch Lists reflecting any
completion of any prior Punch List items. "Substantial Completion" or
"Substantially Complete" shall mean all work of Landlord has been performed,
however, if the Punch List or any revised Punch List consists only of items, the
non-completion of which would not materially impair Tenant's occupancy of the
Premises, then, in such event, the Premises shall also be deemed to be
substantially complete, and Tenant will acknowledge in writing that the Premises
are substantially complete and accept possession of the Premises. Tenant's
acknowledgment or acceptance of the Premises shall not relieve Landlord of its
obligations to complete all Punch List items. If the Punch List or any revised
Punch List consists only of items, the non-completion of which would not
materially impair Tenant's occupancy of the Premises (e.g. the Additional
Premises shall be ready for the use and occupancy of Tenant and the operation of
Tenant's business, notwithstanding the fact that minor or insubstantial details
of construction, mechanical adjustments or decorations remain to be performed;
provided, however, the non-completion of said items shall not materially
interfere with Tenant's use and occupancy of the Premises and operation of
Tenant's business). In such event, the Premises shall be deemed to be
substantially complete ("Substantially Complete" or "Substantial Completion"),
and Tenant will acknowledge in writing that the Premises are Substantially
Complete and accept possession of the Premises.
Notwithstanding anything to the contrary contained in the this
Exhibit "E", in the event, subsequent to Tenant's inspection of the Premises,
Tenant is not reasonably satisfied that the Premises have been Substantially
Completed (with the exception of any Punch List Items), Tenant's architect shall
certify same in writing to Landlord ("Tenant's Noncompletion Notice") within
three (3) business days of the inspection. Within seven (7) Business Days of
Landlord's receipt of Tenant's Noncompletion Notice, Landlord shall either (i)
cause the contractor to commence to remedy those items specified by Tenant in
Tenant's Noncompletion Notice or (ii) object to Tenant in writing, specifying
the reason(s) Landlord objects to Tenant's Noncompletion Notice. If Landlord
objects to Tenant's Noncompletion Notice, Landlord and Tenant shall meet within
five (5) Business Days thereafter in an attempt to resolve the outstanding items
within Tenant's Noncompletion Notice, and if Landlord and Tenant cannot agree on
the Substantial Completion Date at such meeting, the Substantial Completion Date
shall be decided by arbitration before the American Arbitration Association.
- 3 -
<PAGE>
3. Tenant shall have the right to inspect the Tenant Improvements from
time-to-time upon reasonable prior written notice to Landlord, provided that
Tenant (i) does not interfere with the progress of the Tenant Improvements and
(ii) is escorted to the construction area by a representative of Landlord. All
procedures and requirements relating to extras, changes, and deletions in the
Tenant Improvements, and the costs thereof, shall be governed by the terms of
the construction contract document. No extras, changes, or deletions in the
Tenant Improvements materially affecting any structural elements, windows,
elevators, or HVAC, electrical, plumbing, or other systems serving portions of
the Building, other than the Premises, or affecting the cost, scope, character,
or design of the Tenant Improvements shall be permitted without the prior
written consent of Landlord.
4. If Tenant wishes Landlord to do any work in connection with the
Premises other than the Tenant Improvements (such other work hereinafter is
referred to as "Tenant's Extra Work"), the following terms, conditions,
agreements, and procedures shall apply and control:
a. Tenant, at its sole cost and expense, shall submit to Landlord,
on or before the due date for submission of the plans for the Tenant
Improvements or such other date as may be expressly provided herein, all
necessary drawings, plan, and specifications for the proposed Tenant's
Extra Work (such drawings, plans, and specifications hereinafter are
referred to as "Tenant's Extra Work Plans"). Tenant's Extra Work Plans
must be acceptable in all respects to Landlord, which acceptance Landlord
may withhold in its sole discretion.
b. Landlord will construct or cause to be constructed Tenant's Extra
Work substantially in accordance with Tenant's Extra Work Plans provided
that Tenant's Extra Work Plans have been accepted in writing by Landlord,
and that Tenant has compiled with all provisions, terms, and conditions of
this Work Letter.
c. All of Tenant's Extra Work shall be done at Tenant's sole cost
and expense, which shall include a fee to Landlord equal to ten percent
(10%) of the total cost and expense for Landlord's overhead. Prior to
commencing any of Tenant's Extra Work, Landlord shall submit to Tenant for
Tenant's approval a written estimate of the cost of Tenant's Extra Work
(hereinafter referred to as "Estimate"). Landlord may elect not to proceed
with Tenant's Extra Work unless and until one estimate covering the same
is approved in writing by Tenant and an approved copy is delivered to
Landlord
d. Prior to commencement of Tenant's Extra Work or any extra or
change therein, Landlord may require Tenant to deposit with Landlord in
escrow an amount sufficient to cover all costs of performing Tenant's
Extra Work or any extra or change, including Landlord's ten percent (10%)
fee for overhead.
e. If Tenant desires any extras, changes, or deletions in Tenant's
Extra Work at any time, Tenant in each instance shall follow the same
procedure herein prescribed for the initiation, approval, and commencement
of Tenant's Extra Work. Tenant hereby designates ___________________ and
___________________ [PLEASE PROVIDE NAME ASAP] as its only representatives
to authorize any such extras, changes, or deletions.
f. Tenant agrees to pay or reimburse Landlord for all architect
costs and Landlord's general contractor's, subcontractor's, and general
conditions' costs pertaining to Tenant's Extra Work. Within seven (7) days
after being billed therefor, Tenant shall pay to Landlord or as Landlord
otherwise directs, all such costs for Tenant's Extra Work. Landlord shall
have, in connection with all such costs, all the rights and remedies that
Landlord has under the Lease in connection with Rent that is due and
payable by Tenant thereunder. All such costs shall be deemed Additional
Rent due and payable under the Lease.
- 4 -
<PAGE>
5. Miscellaneous:
a. The Tenant Improvements and Tenant's Extra Work, if any, shall be
done by Landlord and/or its designers, contractors, and subcontractors, in
accordance with the terms, conditions and provisions herein contained.
b. Except as provided in the Lease, and as herein expressly set
forth, Landlord has no agreement with Tenant and has no obligation to
perform or provide any other work with respect to the Premises. Any other
work in the Premises which may be permitted by Landlord pursuant to the
terms and conditions of the Lease shall be done at Tenant's sole cost and
expense and in accordance with the terms and conditions and provisions of
the Lease and this Work Letter.
c. Under no circumstances shall Tenant's obligation to pay Rent be
delayed in whole or in part because of any delay or cost arising, from or
incurred in connection with the Tenant's Extra Work or any extra, change
or deletion requested or caused by Tenant or its agents or contractors at
any time (i) to any of the Tenant Improvements or Tenant's Extra Work or
(ii) in complying with the terms and conditions of this Work Letter or the
Lease.
d. Time is of the essence under this Agreement.
e. The person signing this Work Letter on behalf of the Tenant has
the express authority of Tenant to do so.
f. This Work Letter shall not be deemed applicable to any additional
office space added to the Premises at any time, whether by any options
under the Lease or otherwise, or to any portion of the Premises or any
additions thereto in the event of a renewal or extension of the original
term of the Lease, whether obtained pursuant to any options under the
Lease or otherwise, unless expressly so provided in the Lease or a written
amendment or supplement thereto.
g. This Work letter shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
6. Notwithstanding anything to the contrary contained in this Exhibit E,
Landlord will provide, at its own cost and expense, a central HVAC system for
Premises #2 only (exclusive of ductwork and control wiring, which shall be
provided by Landlord but included in the Improvement Allowance with regard to
Tenant Improvements) and Landlord shall maintain and repair the HVAC system,
except if caused by the wrongful acts, manner of use (as opposed to Tenant's
permitted use), omissions or negligence of Tenant.
7. Landlord shall, throughout the term of this Lease and at Landlord's
sole cost and expense, comply with any current or future rules, codes or laws
with regard to providing ADA handicap access to the Building, and shall provide
at the time the Premises are delivered to Tenant that the entryway to same is
ADA compliant.
8. Landlord shall also provide to the tenth (10th) floor of the Building a
ADA compliant unisex bathroom, and shall also renovate the elevator lobby and
bathrooms on the tenth (10th) floor in accordance with Building standard.
- 5 -
<PAGE>
LANDLORD: 744 ELROY INVESTORS LLC
By: 744 Broad Investors LLC, its Managing
Member
By: /s/ Peter J. Marsh
-----------------------------
Peter J. Marsh
Managing Member
TENANT: BROADVIEW NETWORKS HOLDINGS, INC.
By: _______________________ By: /s/ Scott Matukas
-------------------------------
Its: ______________________ Its: VP-Admin
-------------------------------
- 6 -
<PAGE>
EXHIBIT "E-1"
LANDLORD WORK LETTER DESCRIPTION
Attached to and made part of
Lease Agreement dated: March 15, 2000
Landlord: 744 ELROY INVESTORS LLC
Tenant: BROADVIEW NETWORKS HOLDINGS, INC.
GENERAL CONSTRUCTION
Floors
1. Removal of existing flooring and prepare the slab to receive new
floor finishes.
2. Furnish and install building standard loop carpeting (Bigelow
Basics) glued down to existing slab with 4" straight vinyl base in
tenant's choice of color, selected by tenant from Bigelow Basic
sample book.
3. Furnish and install building standard vinyl composition tile (VCT)
in lieu of carpet with building standard 4" vinyl cove base in areas
designated by the tenant in not more than 5% of the area of the
demised premises.
Ceilings
1. Furnish and install 2'-0" by 2'-0" tegular edge (recessed edge) tile
with exposed 7/8" wide white tees.
2. All ceilings will be continuous to the exterior walls window,
pockets will not provided.
Partitions
1. Demising partitions will be provided by the landlord.
2. Building standard partition within tenant spaces shall extend from
the floor to 6" above the suspended ceiling and shall be framed with
2 1/2 by 25 gauge steel studs at 24" on center. One (1) layer of
5/8" gypsum wall- board (sheetrock) will be provided on each side
and will be taped and triple coat spackled on the exposed side.
3. Exterior walls will be prepared for painting.
4. Partitions terminating at the building exterior will meet either a
window mullion or column. No partitions, which interfere with the
operation of a window or obscure a window, will be permitted.
5. No partitions, which will block access to radiator control valves,
shall be permitted.
6. No curves will be provided in Building Standard partitions.
7. Building Standard partitions will be provided at the rate of 1
linear foot (LF) of partitions per 15 rentable square feet (RSF).
Doors and Frames
1. Multi tenant floors.
-- Main corridor entrances will be single 3'-0 x 7' 0" x 1 3/4"
solid core wood doors in a full height welded hollow metal
frame. The frame will have a wood surround on the corridor
side. There shall be a maximum of two (2) corridor entrance
doors per tenant on multi-tenant floors.
- 7 -
<PAGE>
2. Single tenant floors.
-- Main entrance doors will be a pair of 3'-0' x 7' 0' x 1 3/4"
solid core wood doors in full height welded hollow metal
frame. The frame will have a wood surround on the corridor
side in a building standard finish.
3. General
a. Any existing doors that are re-used shall be considered a part
of the tenant's door allowance and will be refinished to
repair damage or match other interior finishes.
b. Building Standard interior doors shall be 3-0' x 7-0" x 1 3/4"
solid core wood doors in knock down hollow metal frames.
Building standard interior doors shall be provided at the rate
of one (1) per 30 LF of Building Standard partition.
4. Hardware
a. Building Standard entry doors will be provided with the
following.
1. Lever handle lockset
2. One and one-half (1 1/2) pair butt hinges
3. Silencers
4. Closers will be provided on suite entry doors only.
Building standard closer shall be a surface mounted
closer (parallel arm or equal) mounted on the tenant
side of the door. Closer shall be through bolted as
required for labeled openings.
b. Building Standard interior doors will be provided with the
following.
1. Lever handle lachset.
2. One and one-half(1 1/2) pair butt hinges.
3. Dome Stop
4. Silencers
c. Tenant, at its sole cost and expense, may install security devices
such as card or proximity readers on the entry doors, subject to
the landlord's approval. Tenant shall submit all devices for
approval by the landlord prior to installation.
Window Treatments
Building standard horizontal off-white window blinds will be provided at all
windows. No substitutions will be permitted.
Finishes
1. All partitions will be painted with one prime coat and one finish coat in
colors selected by the tenant from the landlord's standard color chart.
Paint will be Benjamin Moore or equal. All paint shall be latex flat.
Twenty percent (20%) of the partitioning may be painted in an accent color
on walls from corner to corner. Not striping will be provided.
2. Entrance door to tenant's space will be finished in the buildings standard
color. Wood doors and frames located within the tenant's space will be
painted with semi-gloss enamel paint, or in a clear finish at tenants'
choice.
3. Radiator covers and window trim will be painted with semi-gloss enamel
paint.
Electric
1. Electrical capacity will be provided at 6 watts connected load per
rentable square foot at the floor electrical closet at 277/480 volts for
the tenant.
2. Lighting shell consist of a 2' x 4', 18 cell 3" deep parabolic fluorescent
lay in fixture with three (3) 32 watt energy efficient lamps and
electronic ballast.
- 8 -
<PAGE>
3. Emergency lighting will be provided by landlord within the demised
premises in compliance with applicable codes.
4. Electrical receptacles shall be provided in building standard partitions
as follows. Receptacles will not be provided in core walls or on columns.
a. 120V 15A wall receptacle: 1 per every 150 RSF.
b. Dedicated 120V 20A wall receptacle: 1 per every 5,000 RSF.
c. GFI receptacle: 1 per every 16,000 RSF.
d. One quadruplex electrical wall receptacle may be exchanged for two
duplex outlets.
5. Light switches shall be provided as follows.
a. One (1) switch per room.
b. Open office areas shall be provided with switches so that one half
(1/2) of the lights in an area greater than 500 SF may be shut off
at one time.
6. Fire alarms devices shall be provided in compliance with applicable codes
for office occupancies. Special fire alarm devices or systems for computer
rooms, supplementary air conditioning systems, food service facilities,
file rooms, or other non-typical office construction shall be provided by
the tenant at tenant's sole cost and expense. Final connection of all fire
alarm systems provided by tenants to the building fire alarm system shall
be by the landlord's fire alarm contractor at tenant's expense.
Heating, Ventilation, and Air Conditioning
1. Air Conditioning
a. HVAC is provided to maintain year round comfort based on ASHRAE
Comfort Chart. This is based on cooling 1.5 watts per square foot
lighting and 2.5 watts per square foot power, one person for 100
square feet and the use of building standard internal shading
devices.
b. Zoning is provided to individual areas (areas are determined by
tenant layout) by use of single duct bypass boxes. Allowances are: 1
per 1,080 square feet for perimeter zones and 1 per 1800 square feet
for interior zones.
c. Air distribution devices will be building standard diffusers and
return air grills compatible with the building standard ceiling and
shall be white to match the ceiling. No linear diffusers, air
handling light fixtures, air boots, etc. will be provided.
2. Ventilation air (fresh air) will be provided at the rate of .2 CFM per
square foot.
3. Heating
a. Heating is provided through perimeter cast iron radiators during
regular business hours.
b. Zoning is provided utilizing self contained thermostatic control
valves at a minimum one (1) per two radiators.
Fire Protection
1. Recessed concealed sprinkler heads and necessary branch piping will be
provided, at the rate of one (1) head per 150 RSF in compliance with
applicable code requirements for an office occupancy. Sprinkler heads will
be located at the center of ceiling tiles.
2. Sprinkler heads will be in off-white standard factory finish.
3. No deluge, pre-action, or high-density systems will be installed.
- 9 -
<PAGE>
Telecommunications
1. Voice, high-speed data, and high speed Internet access will be available
to every tenant space at tenant cost. Tenant will have the option of
choosing any telephone carrier, Internet provider, data transmission
carrier, etc., at the sole cost and expense of the tenant.
2. The building will provide redundant fiber optic vertical backbone
containing the following.
a. Twenty-four (24) Multimode and twelve (12) single Mode fibers per
floor.
b. T1 (ABAM) cable and voice grade copper (approximately 48 pairs per
floor).
c. 200 pair voice grade copper per floor.
d. RG-11 riser grade coax cable to support DSS and land based broadcast
video.
3. Telephone riser and IDF shall be provided by the landlord. IDF"s will
contain blocks for termination of tenant cabling for high speed fiber,
copper, an Internet provisioning. All connection of tenant telephone
cabling to the building IDF shall be by landlord's contractor at the
tenant's sole expense.
4. Tenant shall install its own telephone equipment wiring at tenant's sole
cost and expense. Tenant telephone work shall be coordinated with the
initial tenant installation; cost of repair, refinishing, etc., due to the
actions of tenant's installation forces shall be repaired by landlord at
tenant expense.
5. Tenant may utilize plenum rated cable for voice and data cabling.
6. A telephone junction box and 3/4" conduit stub-up will be provided for
tenant telephones at the rate of one (1) per every 200 RSF. One (1)
dragline shall be provided for each stub-up; stubups will extend 6" above
the finished ceiling.
7. The building riser will be supported by several voice/data carriers and
services whose facilities will be co-located at the MDF (main distribution
frame) room in the basement. Scheduled services available are: Qwest
redundant OC-18 with expansion to OC-48+, Bell Atlantic sonnet ring,
MCI/Worldcom services, and others.
Tenant Identification.
1. Landlord shall provide a building directory in the ground floor lobby.
Tenant shall submit its building directory listing with its final plans.
The quantity of listing will be determined by Landlord at Tenant's sole
cost and expense.
2. Landlord shall provide initial listings at its sole cost and expense. Any
changes or additional listings will be furnished and installed by Landlord
at Tenant's sole cost and expense.
3. Landlord, at its sole cost and expense, shall furnish and install Tenant's
identification on Tenant's front entry surround. The design of such
identification shall conform to the Building Standard, and shall be
approved by landlord.
4. In cases where a tenant had two corridor entry doors, one shall be
designated as the principal entry only. Secondary doors shall have no
identification whatsoever, except the room or suite number.
- 10 -
<PAGE>
EXHIBIT "F"
INTENTIONALLY DELETED
- 11 -
<PAGE>
EXHIBIT "G"
CLEANING SPECIFICATIONS
GENERAL CLEANING OFFICE AREAS - NIGHTLY - MONDAY THROUGH FRIDAY (LEGAL AND
BUILDING SERVICE EMPLOYEES INTERNATIONAL UNION HOLIDAYS EXCLUDED)
Dust sweep composition flooring with specially treated cloths.
Carpet sweep carpeted areas four (4) nights each week, spot clean carpets once
each week and vacuum once each week, moving light furniture other than desks,
file cabinets, etc.
Remove waste paper and waste materials to designated area in the premises during
evening hours using special junior carriages. Waste or rubbish bag shall be
supplied to us by the Landlord.
Dust and wipe clean furniture, fixtures, desk equipment, telephones and windows
sills with specially treated cloth, if accessible.
Dust baseboards, chair rails, trim, louvers, pictures, charts etc. within reach.
LAVATORIES - NIGHTLY
Sweep and wash flooring with approved germicidal detergent solution.
Wash and polish mirrors, powder shelves, bright work, etc., including
flushometers, piping and toilet seat hinges.
Wash both sides of toilet seats, wash basin, bowls and urinals with approved
germicidal detergent solution.
Dust partitions, tile walls, dispensers and receptacles.
Remove waste paper and refuse to a designated area in the premises, during
evening hours, using special janitor carriages.
Fill toilet tissue dispensers.
Fill towel and soap dispensers in public and ADA bathrooms with supplies
furnished by Landlord.
PUBLIC AREAS - PERIODIC CLEANING
Elevator, stairway, office and utility doors on each floor will be checked for
general cleanliness, removing finger marks as necessary.
Remove finger marks from metal partitions and other similar surfaces as
necessary.
HIGH DUSTING
Do high dusting every three (3) months which includes the following:
Dust pictures, frames, charts, graphs and similar wall hangings not reached in
nightly cleaning.
Dust exterior of light fixtures.
Dust overhead pipes, sprinklers, etc.
Dust window frames.
- 12 -
<PAGE>
LAVATORIES - PERIODIC CLEANING
Machine scrub flooring with approved germicidal detergent solution as necessary.
Wash partitions, tile walls and enamel surfaces with approved germicidal
detergent solution once a month.
Dust exterior of lighting fixtures every three (3) months.
High dust once per month.
WINDOW CLEANING
1. Clean all perimeter office windows, both exterior and interior, two times a
year weather permitting.
2. All window cleaning will be performed during the regular working hours of
7:00 a.m. to 3:30 p.m. Monday through Friday, excluding Saturdays and Sundays,
and union holidays.
3. No exterior window washing will be done on days of rain, sleet, or snow but
will be performed as soon as possible thereafter.
SCHEDULE OF CLEANING
Night Cleaning service shall be rendered five nights each week; Monday through
Friday, except on Union and Legal Holidays.
EXTERMINATING SERVICE
Base Building exterminating services will be provided once a month for mice and
roaches. Special services such as fogging etc., will be furnished upon request
for an additional charge at prices to be mutually agreed upon in advance.
- 13 -
<PAGE>
Exhibit 10.37
WTC-SOL3195 LEASE NO. WT-3636-A-53 (2901)
================================================================================
THE PORT AUTHORITY
OF NEW YORK AND NEW JERSEY
WORLD TRADE CENTER
----------------------------
AGREEMENT OF LEASE
Between
THE PORT AUTHORITY OF
NEW YORK AND NEW JERSEY
And
BROADVIEW NETWORKS, INC.
----------------------------
================================================================================
<PAGE>
Section 1. Letting ........................................................ 1
Section 2. Term ........................................................... 1
Section 3. Rights of User by the Lessee ................................... 2
Section 4. Basic Rental ................................................... 2
Section 5. Governmental Requirements ...................................... 2
Section 6. Rules and Regulations .......................................... 3
Section 7. Responsibilities of the Lessee ................................. 3
Section 8. Maintenance and Repair ......................................... 4
Section 9. Casualty ....................................................... 5
Section 10. Indemnity ...................................................... 6
Section 11. Ingress and Egress ............................................. 6
Section 12. Construction by the Lessee ..................................... 7
Section 13. Signs .......................................................... 10
Section 14. Injury and Damage to Person or Property ........................ 10
Section 15. Additional Rent and Charges .................................... 11
Section 16. Rights of Entry Reserved ....................................... 11
Section 17. Condemnation ................................................... 12
Section 18. Abatement of Rental ............................................ 13
Section 19. Assignment and Sublease ........................................ 13
Section 20. Termination .................................................... 14
Section 21. Right of Re-entry .............................................. 16
Section 22. Survival of the Obligations of the Lessee ...................... 16
Section 23. Reletting by the Port Authority ................................ 17
Section 24. Waiver of Redemption ........................................... 18
Section 25. Remedies and Suits Against the Lessee .......................... 18
Section 26. Surrender ...................................................... 18
Section 27. Acceptance of Surrender of Lease ............................... 18
Section 28. Brokerage ...................................................... 18
Section 29. Notices ........................................................ 19
Section 30. Payments ....................................................... 19
Section 31. Subordination .................................................. 19
Section 32. Quiet Enjoyment ................................................ 19
Section 33. Non-Liability of Individuals ................................... 20
Section 34. Headings ....................................................... 20
Section 35. Construction and Application of Terms .......................... 20
Section 36. Definitions .................................................... 20
Section 37. Liability Insurance ............................................ 21
Section 38. Late Charges ................................................... 23
Section 39. Force Majeure .................................................. 23
Section 40. Premises ....................................................... 23
Section 41. Governmental Compliance ........................................ 24
Section 42. Services and Utilities ......................................... 24
Section 43. Security Deposit or Letter of Credit ........................... 27
Section 44. Additional Right of Termination ................................ 28
Section 45. Entire Agreement ............................................... 30
i
<PAGE>
WTC-SOL-91295
THIS AGREEMENT, was made as of the 19th day of January, 2000,
by and between THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter called
the "Port Authority"), a body corporate and politic, created by Compact between
the States of New Jersey and New York, with the consent of the Congress of the
United States of America, and having an office at One World Trade Center, in the
Borough of Manhattan, City, County, and State of New York and Broadview Network,
Inc. (hereinafter called the "Lessee"), a corporation of the State of New York
having its principal place of business at 45-18 Court Square, Long Island City,
NY 11101, whose representative is Scott Matukas, whose Employer Identification
Number is 16-1401082, whose security deposit is $50,000.00, and whose Broker is
Equis Corporation, a corporation of the State of New York having its principal
place of business at 65 East 55th Street, New York, NY 10022.
WITNESSETH That:
The Port Authority and the Lessee, for and in consideration of
the rents, covenants and agreements hereinafter contained, mutually convenants
and agree as follows:
Section 1. Letting
The Port Authority hereby lets to the Lessee and the Lessee
hereby hires and takes from the Port Authority, at The World Trade Center, in
the Borough of Manhattan, City, County and State of New York, the space as shown
in diagonal hatching on the sketch annexed hereto, and made a part hereof and
marked "Exhibit A", together with the fixtures, improvements and other property
of the Port Authority located or to be located therein or thereon, the said
space, fixtures improvements and other property of the Port Authority being
hereinafter collectively referred to as the "premises". The Port Authority and
the Lessee hereby acknowledge that the aforesaid premises constitute
non-residential real property, that for all purposes under this Agreement the
premises are comprised of 2,751 rentable square feet and that the premises will
be delivered to the Lessee "as is", or "as is" with the Port Authority providing
a finishing allowance of $50.00, or with the Port Authority performing the
construction and finishing work described in the schedule (if any) annexed
hereto, made a part hereof and marked "Schedule C".
Section 2. Term
(a) The term of the letting under this Agreement shall
commence at 12:01 o'clock A.M. on February 1, 2000, said date as the same may be
postponed pursuant to paragraph (b) hereof being the "Commencement Date", and
shall, unless sooner terminated, or unless extended, expire at 11:59 o'clock
P.M. on January 31, 2002, said date as the same may be postponed pursuant to
paragraph (b) hereof being the "Expiration Date".
(b) If on the date set forth as the commencement of the term
of the letting in paragraph (a) above, the premises are not available or ready
for occupancy or use by the Lessee, by reason of the fact that the premises or
any part thereof, or any part of The World Trade Center, are in the course of
construction, repair, alteration or improvement or by reason of the fact that
the occupant of the premises, or a part thereof, failed or refused to deliver
possession, or by reason of any causes or conditions beyond the control of the
Port Authority, the Port Authority may postpone the letting and the Port
Authority shall not be subject to any liability for such postponement or failure
to give possession on such date. No such postponement or failure to give
possession on such date shall affect the validity of this Agreement or the
obligations of the Lessee hereunder. In the event the date set forth as the
commencement of the term of the letting in paragraph (a) above shall be
postponed, then the term of the letting shall commence on the effective date
possession of the premises is tendered by the Port Authority to the Lessee;
tender shall be made by notice given at least five (5) days prior to the
effective date of the tender; and in the event that the date set forth as the
commencement of the term of the letting in paragraph (a) above shall be
postponed, then the expiration date of the letting shall be postponed for a
period of time equivalent to the period between the date set forth as the
commencement of the term of the letting in paragraph (a) above and the last day
of the calendar month in which the actual commencement date shall fall. In the
event that notice of tender of the premises is not given for possession to
commence on or before three hundred sixty-five (365) days after the date set
forth as the commencement of the term of the letting in paragraph (a) above,
then this Agreement shall be deemed canceled, except that each party shall and
does release and discharge the other party from any and all claims or demands
based on this Agreement, or a breach or alleged breach thereof.
<PAGE>
WTC-SOL-91295
Section 3. Rights of User by the Lessee
The Lessee shall use the premises for the following purposes
only and for no other purpose whatsoever: as a clerical and administrative and
sales office for the Lessee's telecommunication business.
Section 4. Basic Rental
(a) The Lessee agrees to pay the Port Authority a basic rental
for the premises at the rate of: $99,036.00 per annum, payable in advance in
equal monthly installments of $8,253.00 on the Commencement Date and on the
first day of each month thereafter, through and including January 31, 2001 and
at the rate of $104,544.00 per annum in equal monthly installments of $8,712.00
for the period from and after February 1, 2001 throughout the balance of the
term of the letting under this Agreement.
(b) If the Commencement Date is other than the first day of a
month, the installment of basic rental payable on the Commencement Date shall be
the amount of the monthly installment stated above, multiplied by a fraction the
numerator of which shall be the number of days the letting is in effect in the
month in which the Commencement Date shall fall and the denominator of which
shall be the actual number of days in that month, and if the Expiration Date or
termination date of the letting is other than the last day of a month, the basic
rental for the portion of the month during which the letting is effective shall
be the amount of the monthly installment similarly prorated.
(c) The basic rental shall be subject to adjustment during the
letting in accordance with the provisions of Schedule A attached to the
Agreement and hereby made a part hereof
Section 5. Governmental Requirements
The Lessee shall promptly observe, comply with and execute the
provisions of any and all present and future governmental laws, rules and
regulations, requirements, orders and directions which may pertain or apply to
the operations of the Lessee on the premises or at The World Trade Center or its
occupancy of the premises which are applicable or which would be applicable if
the Port Authority were a private corporation, and the Lessee shall, in
accordance with and subject to the provisions of the Section of this Agreement
entitled "Construction by the Lessee", make any and all improvements,
alterations or repairs of the premises that may be required at any time
hereafter by any such present or future law, rule, regulation, requirement,
order or direction, provided such improvements, alterations or repairs are not
required generally throughout the building in which the premises are located
unless such general requirement results from the Lessee's manner of use of or
its operations in the premises which are not common to other tenants in the
building in which the premises are located. The provisions of this Section are
not to be construed as a submission by the Port Authority to the application to
itself of such requirements, or any of them.
-2-
<PAGE>
WTC-SOL3195
Section 6. Rules and Regulations
The Lessee covenants and agrees to observe and obey (and to compel
its officers, members, employees, agents, representatives, contractors,
customers, guests, invitees and those doing business with it to observe and
obey) the Rules and Regulations of the Port Authority (a copy of which is
attached hereto, hereby made a part hereof and marked "Exhibit R") for the
government of the conduct and operations of the Lessee, and such further
reasonable rules and regulations (including amendments and supplements thereto)
as may from time to time and throughout the letting be promulgated by the Port
Authority for reasons of safety, health or preservation of property, or for the
maintenance of the good and orderly appearance of the premises and the World
Trade Center or for the safe or efficient operation of the World Trade Center,
provided, however, that in case of any conflict or inconsistency between the
provisions of this Agreement and any of the Rules and Regulations, the
provisions of this Agreement shall control. The Port Authority agrees that,
except in cases of emergency, it will give notice to the Lessee of every such
further rule or regulation adopted by it at least five (5) days before the
Lessee shall be required to comply therewith. The Port Authority shall not
enforce any of the Rules and Regulations in such manner as to discriminate
against the Lessee.
Section 7. Responsibilities of the Lessee
(a) The Lessee shall conduct its operations in an orderly and proper
manner and so as not to annoy, disturb or be offensive to others at the World
Trade Center, and the Lessee shall control the conduct of its officers, members,
employees, agents, representatives, contractors, customers, guests, invitees and
those doing business with it. Upon objection from the Port Authority concerning
the conduct of any such the Lessee shall immediately take all steps necessary to
remove the cause of the objection.
(b) The Lessee shall not commit any nuisance on the premises, or do
or permit to be done anything which may result in the creation or commission of
a nuisance on the premises, and the Lessee shall not cause or permit to be
caused or produced upon the premises, to permeate the same or to emanate
therefrom, any unusual, noxious or objectionable smokes, gases, vapors, odors or
objectionable noises.
(c) The Lessee shall not use or connect any equipment or engage in
any activity or operation in the premises which will cause or tend to cause an
overloading of the capacity of any existing or future utility, mechanical,
electrical, communication or other systems, or portion thereof, serving the
premises, nor shall the Lessee do or permit to be done anything which may
interfere with the effectiveness or accessibility of existing and future
utility, mechanical, electrical, communication or other systems or portions
thereof on the premises or elsewhere at the World Trade Center.
(d) The Lessee shall not overload any floor, roadway, passageway,
pavement or other surface or any wall, partition, column or other supporting
member, or any elevator or other conveyance, in the premises or at the World
Trade Center and without limiting any other provision of this Agreement, the
Lessee shall repair, replace or rebuild any such damaged by overloading.
(e) The Lessee shall not install, maintain or operate or permit the
installation, maintenance or operation on the premises of any vending machine or
service designed to dispense or sell food, beverages, tobacco products or
merchandise of any kind, whether or not included in the above categories, or any
restaurant, cafeteria, kitchen, stand or other establishment for the
preparation, dispensing or sale of food, beverages, tobacco or tobacco products,
or merchandise of any kind or any equipment or device for the furnishing to the
public of a service of any kind, including without limitation thereto any.
telephone pay-stations.
(f) The Lessee shall not use or make any reference, by advertising,
or otherwise, to the names "World Trade Center, (except to designate the
Lessee's business address and then
-3-
<PAGE>
WTC-SOL3195
only in a conventional manner and without emphasis or display), "The Port
Authority of New York and New Jersey", "Port Authority" or any simulation or
abbreviation of any such names, or any emblem, picture or reproduction of the
World Trade Center, for any purpose whatsoever. Upon notice from the Port
Authority the Lessee shall immediately discontinue any such use or reference.
(g) The Lessee recognizes that the Port Authority has undertaken
the planning, construction and operation of the World Trade Center as a facility
of commerce pursuant to concurrent legislation of the State of New York, Chapter
209, Laws of New York, 1962 and the State of New Jersey, Chapter 8, Laws of New
Jersey, 1962 (hereinafter the "Statutes"). The Statutes provide that the Port
Authority should be regarded as performing an essential governmental function in
the construction and operation of the World Trade Center and that all details of
the effectuation of the World Trade Center including the leasing and contracts
thereof shall be within the sole discretion of the Port Authority and its
decision shall be controlling and conclusive and that it is of the essence of
the Statutes and of this Agreement that the Port Authority retain in its sole
discretion the determination of all matters concerning the World Trade Center
including the occupancy of the World Trade Center. Accordingly, the purpose,
character and scope of the Lessee's occupancy, operation and usage of the
premises as described in the Section of this Agreement entitled "Rights of User
by the Lessee" are of primary importance and inducement to the Port Authority in
entering into this Agreement with the Lessee. The Lessee has represented to the
Port Authority that all its occupancy, operation and usage, throughout the term
of the letting hereunder, will be in strict accordance with and subject to the
provisions and requirements of the Section of this Agreement entitled" Rights of
User by the Lessee" and the Port Authority has relied on such representations in
entering into this Agreement The Lessee further acknowledges for itself and for
any successor to its interest in this Agreement that this Agreement cannot be
assigned or a sublease entered into by the Lessee without the prior written
consent of the Port Authority and in accordance with the provisions of the
Section of this Agreement entitled "Assignment and Sublease". Without affecting
the Lessee's liability for any breach of this representation and its obligations
hereunder, in the event that the Lessee has not complied with all the
requirements of this Section and of the Section of this Agreement entitled
"Rights of User by the Lessee", within a period of ten (10) days after notice
from the Port Authority of such non-compliance, the Port Authority may by five
(5) days' notice terminate this Agreement and the letting hereunder and the
same shall be and operate as a conditional limitation and have the same effect
as if it were specifically included as a ground for termination under paragraph
(a) of the Section of this Agreement entitled "Termination".
Section 8. Maintenance and Repair
(a) Except to the extent of such items of cleaning service as may be
supplied by the Port Authority as stated in the Section of this Agreement
entitled "Services and Utilities", the Lessee shall at all times keep the
premises in a clean and orderly condition and appearance, together with all
fixtures, equipment and personal property of the Lessee located in or on the
premises, including without limitation thereto the interior surface of windows
and both sides of all entrance doors.
(b) The Lessee shall repair, replace, rebuild and paint all or any
part of the premises or of the World Trade Center which may be damaged or
destroyed by the acts or omissions of the Lessee, its officers, members,
employees, agents, representatives, contractors, customers, guests, invitees or
other persons who are doing business with the Lessee or who are on or at the
premises or the World Trade Center with the consent of the Lessee.
(c) The Lessee shall take good care of the premises, including
therein, without limitation thereto, walls, partitions, floors, ceilings, doors
and columns, and all parts thereof, and all equipment and fixtures, and shall do
all preventive maintenance and make all necessary non-structural repairs,
replacements, rebuilding and painting necessary to keep the premises in the
condition existing at the commencement date of the letting and to keep any
improvements, additions and fixtures made or installed during the term of the
letting in the condition they were in when made or installed except for
reasonable wear which does not adversely affect the
-4-
<PAGE>
WTC-SOL3195
watertight condition or structural integrity of the building or adversely affect
the efficient or proper utilization or the appearance of any part of the
premises.
(d) In the event the Lessee fails to commence so to make or do any
repair, replacements, rebuilding or painting required by this Agreement within a
period of ten, (10) days after notice from the Port Authority so to do, or fails
diligently to continue to completion the repair, replacement, rebuilding or
painting of all of the premises required to be repaired, replaced, rebuilt or
painted by the Lessee under the terms of this Agreement, the Port Authority may,
at its option, and in addition to any other remedies which may be available to
it, repair, replace, rebuild or paint all or any part of the premises included
in the said notice, the Port Authority's cost thereof to be paid by the Lessee
on demand. This option or the exercise thereof shall not be deemed to create or
imply any obligation or duty to the Lessee or others.
(e) The obligation of the Lessee as set forth in paragraphs (b) and
(c) of this Section, in the event of damage or destruction covered by any
contract of insurance under which the Port Authority is the insured, is hereby
released to the extent that the loss is recouped by actual payment to the Port
Authority of the proceeds of such insurance; provided, however, that if at any
time because of this release the insurance carrier of any policy covering the
premises or any part thereof shall increase the premiums otherwise payable for
fire, extended coverage or rental coverage applicable to the premises, the
Lessee shall pay to the Port Authority an amount equivalent to such increase or
increases on demand; and provided, further, that if at any time this release
shall invalidate any such policy of insurance or reduce, limit or void the
rights of the Port Authority thereunder, or if because of this release, any such
insurance carrier shall cancel any such policy or shall refuse to issue or renew
the same or shall refuse to issue a policy with an endorsement thereon under
which this release is permitted without prejudice to the interest of the insured
or shall cancel such endorsement or refuse to renew the same or shall take any
other action to alter, decrease or diminish the benefits of the Port Authority
under the policy, then the release shall be void and of no effect. Nothing
herein shall be construed to imply an obligation on the Port Authority to carry
any such insurance policy or to obtain or keep in force any such endorsement.
Section 9. Casualty
(a) In the event that, as a result of a casualty insurable under the
New York standard form of fire insurance policy and extended coverage
endorsement, the premises are damaged without the fault of the Lessee, its
officers, members, employees, customers, guests, invitees or other persons who
are doing business with the Lessee or who are on the premises with the Lessee's
consent, so as to render the premises untenantable in whole or part, then
(1) if the Port Authority finds that the necessary repairs or
rebuilding can be completed within ninety (90) days after the occurrence
of the damage, the Port Authority shall repair or rebuild with due
diligence, and the rental hereunder shall be abated, as hereinafter
provided in the Section of this Agreement entitled "Abatement of Rental",
only for the period from the occurrence of the damage to the completion of
the repairs or rebuilding, whether or not the work of repair or rebuilding
is actually completed within the said ninety (90) days; or
(2) if the Port Authority finds that such repairs or rebuilding
cannot be completed within ninety (90) days after the occurrence of the
damage, or if the Port Authority concludes that other than the premises
also require rebuilding, then the Port Authority shall have options: (i)
to proceed with due diligence to repair or to rebuild the premises as
necessary; or (ii) to terminate the letting as to the damaged portion of
the premises only, and the rental hereunder shall be abated as provided in
the Section of this Agreement entitled Abatement of Rental", from and
after the occurrence of the damage, or (iii) to terminate the letting as
to the entire premises; and in the case of (i) and (iii), the rental
hereunder shall be abated, as provided in the Section of this Agreement
entitled "Abatement of Rental", either, as the case may require, for the
period from the occurrence of the damage to the completion of repairs and
rebuilding of the premises or for the period from the occurrence of the
damage to the effective date of termination.
-5-
<PAGE>
WTC-SOL3195
(b) The parties do hereby stipulate that neither the provisions of
Section 227 of the Real Property Law of the State of New York nor those of any
other similar statute shall extend or apply to this Agreement.
(c) The Lessee shall give the Port Authority immediate notice in
case of any fires accident or casualty in the premises or elsewhere in the World
Trade Center if the occurrence elsewhere in the World Trade Center is known to
and involves the Lessee, its officers, members, employees, agents,
representatives, contractors, or is known to any of them and involves customers,
guests or invitees of the Lessee.
(d) In the event of a partial or total destruction of the premises,
the Lessee shall as soon as practicable remove any and all of its property and
all debris from the premises or the portion thereof destroyed and if the Lessee
does not promptly so remove, the Port Authority may discard the same after
giving the Lessee five (5) days' prior notice of such or may remove the Lessee's
property to a public warehouse for deposit or retain the same in its own
possession and at its discretion may sell the same at either public auction or
private sale, the proceeds of which shall be applied first to the expenses of
removal, storage and sale, second to any sums owed by the Lessee to the Port
Authority, with any balance remaining to be paid to the Lessee; if the expenses
of such removal, storage and sale shall exceed the proceeds of sale, the Lessee
shall pay such excess to the Port Authority upon demand.
Section 10. Indemnity
(a) The Lessee shall indemnify and hold harmless the Port Authority,
its Commissioners, officers, agents and employees from (and shall reimburse the
Port Authority for the Port Authority's costs or expenses including reasonable
legal expenses and the costs to the Port Authority of its in-house legs) counsel
incurred in connection with the defense of) all claims and demands of third
persons including but not limited to those for death, for personal injuries, or
for property damages, arising out of any default of the Lessee in performing or
observing any term or provision of this Agreement, or out of the use or
occupancy of the premises by the Lessee or by others with its consent, or out of
any of the acts or omissions of the Lessee, its officers, members, employees,
agents, representatives, contractors, customers, guests, invitees and other
persons who are doing business with the Lessee or who are at the premises with
the Lessee's consent where such acts or omissions are on the premises, or
arising out of any acts or omissions of the Lessee, its officers, members,
employees, agents and representatives where such acts or omissions are elsewhere
at the World Trade Center.
(b) If so directed, the Lessee shall at its own expense defend any
suit based upon any such claim or demand (even if such suit, claim or demand is
groundless, false or fraudulent), and in handling such it shall not, without
obtaining express advance permission from the General Counsel of the Port
Authority, raise any defense involving in any way the jurisdiction of the
tribunal over the person of the Port Authority, the immunity of the Port
Authority, its Commissioners, officers, agents or employees, the governmental
nature of the Port Authority or the provision of any statutes respecting suits
against the Port Authority.
Section 11. Ingress and Egress
The Lessee solely for itself, its officers, employee and such
business invitees as are at the premises in connection with the transaction of
the regular business of the Lessee, shall have the right of ingress and egress
between the premises and the City streets outside the World Trade Center. Such
right shall be exercised by means of such corridors, lobbies, public areas and
pedestrian or vehicular ways, and by means of such elevators, escalators or
other facilities for movement of persons or property, to be used subject to all
the provisions of this Agreement and in common with others having rights of
passage and movement within the World Trade Center, as may from time to time be
designated by the Port Authority for the use of the public. The use of any such
facility, way or other area shall be subject to the rules and regulations of the
Port Authority which are now in effect or which may hereafter be promulgated for
the safe and efficient operation of the World Trade Center. The Port Authority
may, at any time, temporarily or
-6-
<PAGE>
WTC-SOL3195
permanently close, move, change or limit the use of, or consent to or request
the closing, moving, changing or limitation of the use of, any such facility,
way or any other area at or near the World Trade Center presently or hereafter
used as such, so long as a reasonably comparable means of ingress and egress as
provided above remains available to the Lessee. The Lessee shall not do or
permit anything to be done which will interfere with the free access and passage
of others to space adjacent to the premises or in any areas, streets, ways,
facilities and walks near the premises.
Section 12. Construction by the Lessee
(a) The Lessee shall not erect any structures, make any
modifications, alterations, additions, improvements, repairs or replacements or
do any construction work on or to the premises, or install any fixtures in or on
the premises (other than trade fixtures, removable without injury to the
premises) without the prior consent of the Port Authority, and in the event any
constructions improvement, alteration, modification, addition, repair or
replacement is made or done with or without such consent and unless the consent
of the Port Authority shall expressly provide otherwise, the same shall
immediately become the property of the Port Authority and the Lessee shall have
no right to change or remove the same either during the term or at the
expiration thereof. Notwithstanding the foregoing, immediately upon notice from
the Port Authority given at any time during the letting, the Lessee shall remove
or change any of the same made or done by it without the Port Authority's
consent, and in the case of any of the same made or done with the Port
Authority's consent, the Lessee if so required by notice from the Port
Authority, shall remove or change the same immediately upon the expiration or
termination of the letting, or immediately upon receipt of such notice as may be
given within sixty (60) days after such expiration or termination. With respect
to any modifications, additions, alterations, improvements, installations or
construction made or done by the Port Authority at the request of the Lessee
either prior to or during the term of the letting, the Lessee shall have the
same obligations as provided above with respect to that made or done by the
Lessee with the Port Authority's consent.
(b) The Lessee has thoroughly examined and inspected the premises
and agrees to take the premises "as is" in the condition they are in when
vacated by the occupant thereof and turned over to the Lessee by the Port
Authority. `The Lessee acknowledges that it has not relied upon any
representation or statement of the Port Authority or of its Commissioners,
officers, agents or employees as to the suitability of the premises for the
operations permitted thereon by this Agreement. The Port Authority shall have no
obligation hereunder for finishing work or preparation of the premises for the
Lessee's use unless there is a Schedule C attached hereto, in which event, as an
undertaking collateral to the letting hereunder, and subject to all of the
provisions of this Agreement (including but not limited to the Section of this
Agreement entitled "Force Majeure"), the Port Authority, through its employees,
agents, representatives, contractors and subcontractors, at its cost and
expense, shall cause the premises to be finished substantially in accordance
with the provisions of Schedule C and any attachments thereto depicting the
construction and finishing work to be performed by the Port Authority, all of
which has heretofore been reviewed and approved by the Lessee. The Lessee hereby
acknowledges that upon the substantial completion of the construction and
finishing work to be performed by the Port Authority, the premises will be
suitable for the Lessee's operations hereunder, and the Lessee hereby further
acknowledges that it has not relied upon any representation or statement of the
Port Authority or its Commissioners, officers, agents or employees as to the
suitability of the premises for the operations permitted thereon by this
Agreement. If there is no Schedule C attached hereto, the Port Authority shall
have no obligation to perform construction and finishing work hereunder and the
Lessee agrees to perform at its sole cost and expense all construction and
installation work that it may require to finish off and decorate the premises.
Without limiting the generality of the foregoing, the Lessee acknowledges that
facilities for heat, ventilation and air cooling have heretofore been installed
in the premises pursuant to a certain design configuration and the Port
Authority makes no representations that such heat, ventilation and air-cooling
shall be adequate for the Lessee's needs and in the event any alteration to such
facilities shall be required the cost of the same shall be borne by the Lessee
unless the Port Authority is performing the construction and finishing work
hereunder pursuant to Schedule C in which event the heat, ventilation and
air-cooling shall provide an adequate working temperature.
-7-
<PAGE>
WTC-SOL3195
(c) With respect to all modifications, alterations, additions,
improvements, repairs, replacements or other construction or installation work
proposed to be performed by the Lessee in or on the premises (hereinafter
referred to as the "construction and installation work") the Lessee shall submit
to the Port Authority for its approval a construction application for the
premises in the form supplied by the Port Authority and containing such terms
and conditions as the Port Authority may include setting forth in detail and by
appropriate plans and specifications the construction and installation work
proposed by the Lessee to finish off and decorate the premises and the manner of
and time periods for performing the same. No construction and installation work
shall be commenced by The Lessee in the premises until the construction
application and plans and specifications have been finally approved by the Port
Authority. In the event of any inconsistency between the provisions of this
Agreement and the construction application, the provisions of this Agreement
shall control. The data to be supplied by the Lessee shall describe in detail
the fixtures, equipment and systems, if any, to be installed by the Lessee or,
if already installed, to be modified by the Lessee including those for the
emission, handling and distribution of heat, air conditioning, domestic hot and
cold water and electrical and other systems and shall show the proposed method
of tying in the same to the utility lines or connections provided by the Port
Authority either on or off the premises. The Lessee shall install all electrical
distribution equipment required, including but not limited to, service switches,
current transformer cabinets and, if the consumption and demand for electricity
by the Lessee is to be metered, meter pans suitable for the installation by the
Port Authority of an electric meter or meters. The Lessee shall be responsible
at its sole expense for retaining all architectural, engineering and other
technical consultants and services as may be required by the Port Authority and
for developing, completing and submitting detailed plans and specifications for
the work. The plans, and specifications to be submitted by the Lessee to the
Port Authority shall bear the seal of a qualified architect or professional
engineer and shall be in sufficient detail for a contractor to perform the work.
The Lessee shall not engage any contractor or permit the use of any
subcontractor unless and until each such contractor or subcontractor shall have
been approved by the Port Authority. The Lessee shall include in each such
contract or subcontract such provisions as the Port Authority may approve or
require including, without limitation thereto, provisions regarding labor
harmony. The Lessee hereby assumes the risk of loss or damage to all of the
construction and installation work prior to the completion thereof and the risk
of loss or damage to all property of the Port Authority arising out of or in
connection with the performance of the construction and installation work. In
the event of such loss or damage, the Lessee shall forthwith repair, replace and
make good the construction and installation work and the property of the Port
Authority without cost or expense to the Port Authority. The Lessee shall itself
and shall also require its contractors to indemnify and hold harmless the Port
Authority, its Commissioners, officers, agents and employees from and against
all claims and demands, just or unjust, of third persons (including employees,
officers, and agents of the Port Authority) arising or alleged to arise out of
the performance of the construction and installation work and for all expenses,
including without limitation thereto legal expenses (including the costs to the
Port Authority of its in-house legal counsel), incurred by it and by them in the
defense, settlement or satisfaction thereof, including without limitation
thereto, claims and demands for death, for personal injury or for property
damage, direct or consequential, whether they arise from the acts or omissions
of the Lessee, of any contractors of the Lessee, of the Port Authority, or of
third persons, or from acts of God or of the public enemy, or otherwise,
excepting only claims and demands which result solely from affirmative willful
acts done by the Port Authority, its Commissioners, officers, agents and
employees with respect to the construction and installation work, provided,
however that the Lessee shall not be required to indemnify the Port Authority
where such indemnity would be precluded pursuant to the provisions of Section
5-322.1 of the General Obligations Law of the State of New York. The Lessee
shall, and shall cause each of its contractors and subcontractors to, obtain and
maintain in force such insurance coverage, including without limitation a
contractual liability endorsement covering the obligations assumed by the Lessee
in the three preceding sentences, and performance bonds as the Port Authority
shall specify. All work to be performed by the Lessee hereunder shall be in
accordance with the said construction application and final plans and
specifications approved by the Port Authority, shall be subject to inspection by
the Port Authority during the progress of the work and after the completion
thereof and the Lessee shall redo or replace at its own expense any work not
done in accordance therewith. Upon completion of the construction and
installation work to be performed by the Lessee pursuant to the construction
application the Lessee shall deliver to the Port
-8-
<PAGE>
WTC-SOL3195
Authority a certificate by an authorized officer of the Lessee and a certificate
by the Lessee's qualified architect or professional engineer, each certifying
that the construction and installation work has been performed strictly in
accordance with the construction application and the final plans and
specifications approved by the Port Authority and the provisions of this
Agreement and in compliance with all applicable governmental laws, ordinances,
enactments, resolutions, rules, regulations and orders. The Port Authority shall
inspect the construction and installation work and if the same has been
completed as certified by the Lessee and such architect or engineer, the Port
Authority's Assistant Director, Physical Facilities, World Trade Department,
shall so certify to the Port Authority and to the Lessee, subject to the
condition that all risks thereafter with respect to the construction and
installation work and any liability therefor for negligence or other reason
shall be borne by the Lessee. The Lessee shall not use or permit the use of any
portion of the premises in which the construction and installation work is being
performed for any purpose whatsoever until such certification is received from
said Assistant Director, Physical Facilities, and the Lessee shall not use or
permit the use of such portion of the premises even if such certification is
received with respect to a portion of the construction and installation work if
said Assistant Director, Physical Facilities, states in any such certification
that such portion of the premises cannot be used until other specified portions
of the construction and installation work are completed. Upon completion of the
work the Lessee shall supply the Port Authority with "as built" drawings in form
and number requested by the Port Authority.
(d) The Lessee shall be solely responsible for the plans and
specifications used by it, and for the adequacy and sufficiency of such plans
and specifications and all the improvements depicted thereon or covered thereby,
regardless of the consent thereto or approval thereof by the Port Authority or
the incorporation therein of any Port Authority requirements or recommendations.
The Port Authority shall have no obligations or liabilities in connection with
the performance of the work performed by the Lessee or on its behalf or the
contracts for the performance thereof entered into by the Lessee. Any warranties
extended or available to the Lessee in connection with the aforesaid work shall
be for the benefit of the Port Authority as well as the Lessee.
(e) Title to and property in the construction and installation work
performed by the Lessee or the construction and finishing work performed by the
Port Authority and to all fixtures, equipment and systems installed pursuant to
this Section and any replacements thereof shall vest in the Port Authority upon
the construction, installation or replacement thereof and the Lessee shall
execute such necessary documents confirming the same as the Port Authority may
require.
(f) Without limiting or affecting any other term or provision of
this Agreement, the Lessee shall be solely responsible for the design, adequacy
and operation of all utility, mechanical, electrical, communications and other
systems made or installed by the Lessee in the premises and shall do all
preventive maintenance and make all repairs, replacements, rebuilding and
painting necessary to keep such systems and all other improvements, additions
and fixtures, finishes and decorations made or installed by the Lessee (whether
the same involves structural or non-structural work) in the condition they were
in when made or installed except for reasonable wear which does not adversely
affect the watertight condition or structural integrity of the building or
adversely affect the efficient or proper utilization or appearance of any part
of the premises.
(g) If a finishing allowance is set forth in Section 1 of this
Agreement, the Port Authority will pay to the Lessee an amount equal to the
lesser of (1) the Lessee's cost of the initial construction and installation
work performed in the premises by the Lessee to finish off and decorate the
premises for its occupancy or (2) the finishing allowance set forth in Section 1
of this Agreement, such lesser amount being hereinafter called "the Lessee's
Finishing Allowance". The Lessee's Finishing Allowance will be paid to the
Lessee as follows: Upon the receipt by the Port Authority of the certificates of
the Lessee and the Lessee's architect or engineer described in paragraph (c) of
this Section and the delivery by the Port Authority to the Lessee of the
subsequent certificate of the Port Authority's Assistant Director, Physical
Facilities, World Trade Department, described in said paragraph (c), the Lessee
shall supply to the Port Authority a full itemized statement of the Lessee's
cost thereof as such cost is hereinafter defined, certified by a responsible
fiscal officer of the Lessee, which statement shall also certify that there is
no
-9-
<PAGE>
WTC-SOL3195
outstanding indebtedness known to the person signing such statement, after due
inquiry, then due for labor, wages, materials, supplies or services in
connection with such construction and installation work which if unpaid might be
the basis of a vendors, mechanic's, laborer's or materialman's statutory or
similar lien or alleged lien. Nothing contained herein shall be deemed or be
construed as a submission by the Port Authority to the application to itself of
any vendor's, mechanic's, laborer's or materialman's statutory or similar lien.
After such examination of the records and books of account of the Lessee as the
Port Authority may require and after examination and approval of such certified
statement the Port Authority will finally determine the Lessee's cost of the
initial construction and installation work performed in the premises and the
amount of the Lessee's Finishing Allowance and the Port Authority shall pay the
Lessee's Finishing Allowance to the Lessee. For the purposes of this paragraph
and to the extent permitted by sound accounting practice the "Lessee's cost" as
used herein shall mean the sum of (i) reasonable direct labor and material
costs, (ii) reasonable contract costs for the purchase and installation of
fixtures, equipment and other finishing and decorating work including the
installation of telecommunications cabling and modular partitions and work
stations excluding those types mentioned in the following subdivision (iii) and
(iii) engineering, architectural, planning, design and other professional fees
including all building related construction fees such as filing, inspection and
hoisting fees and moving and relocation expenses which taken together do not
exceed twenty percent (20%) of the sum of the amounts described in subdivisions
(i) and (ii) of this sentence. The Lessee shall maintain in the Port District
and in accordance with sound accounting practice books and records of account
pertaining to the Lessee's cost of the construction and installation work
performed in the premises for a period of six (6) years following the completion
of such construction and installation work. The Lessee shall permit the Port
Authority by its agents, employees and representatives to examine and audit the
records and other documentation of the Lessee which pertain to and will
substantiate the Lessee's cost. In no event whatsoever shall the Lessee's cost,
as defined in this paragraph, include any expenses, outlays or charges
whatsoever by or for the account of the Lessee for or in connection with any
equipment or fixtures or the making of any finishing or decorating work unless
such are actually and completely installed in and or made to the premises, nor
shall the Lessee's cost include the cost of any equipment, fixture or
improvement which is secured by liens, mortgages, other encumbrances or
conditional bills of sale. Without limiting the generality of the foregoing it
is specifically understood that payments to employees of the Lessee,
administrative, financing or other overhead charges of the Lessee in connection
with the construction and installation work, whether or not allocable to such
work by the Lessee's accounting practices, and payments made to persons, firms
or corporations which own any of the outstanding shares of the capital stock and
voting rights of the Lessee or any .of whose outstanding shares of capital stock
and voting rights are owned by the Lessee or any persons, firms or corporations
any of whose outstanding shares of capital stock or voting rights are owned by
the same persons, firms or corporations which own any of the outstanding shares
of the capital stock and voting rights of the Lessee shall not constitute items
.of the "Lessee's cost" hereunder. No contractor or third party shall have or
shall be deemed to have acquired any rights Against the Port Authority by virtue
of the execution of this Agreement and nothing contained herein shall operate to
create or give to any such contractor or third party any claim or right of
action against the Port Authority and its Commissioners, officers, agents and
employees.
Section 13. Signs
Except with the prior consent of the Port Authority, the Lessee
shall not erect, maintain or display any signs, advertising, posters or similar
devices at or on the exterior parts of the premises or in the premises so as to
be visible through the windows, glass walls or exterior doors thereof. Upon the
expiration or termination of the letting, the Lessee shall remove, obliterate or
paint out, as the Port Authority may direct, any and all signs and advertising,
posters or similar devices, and in connection therewith shall restore the area
affected to the same condition as at the commencement of the letting.
Section 14. Injury and Damage to Person or Property
The Port Authority shall not be liable to the Lessee or others for
any personal injury, death or property damage from falling material, water,
rain, hail, snow, gas, steam,
-10-
<PAGE>
WTC-SOL3195
dampness, explosion, smoke, radiation, and/or electricity, whether the same may
leak into or fall, issue, or flow from any part of the premises or of the World
Trade Center, including without limitation thereto any utility, mechanical,
electrical, communication or other systems therein, or from any other place or
quarter unless said damage, injury or death shall be due to the negligent acts
of the Port Authority, its employees or agents. Notwithstanding the foregoing
provisions of this Section, the Lessee covenants and agrees that (a) any rights
of the Lessee to make a claim against the Port Authority as contemplated herein
shall be subject to the waiver of subrogation provisions set forth in the
Section of this Agreement entitled "Liability Insurance" and (b) in no event
shall the Lessee be entitled to make a claim for consequential, indirect or
special damages pursuant to this Section.
Section 15. Additional Rent and Charges
(a) If the Lessee shall fail or refuse to perform any of its
obligations under this Agreement, the Port Authority, in addition to all other
remedies available to it, shall have the right (but shall not be obligated to)
to perform any of the same after notice, except in the case of an emergency, and
the expiration of any applicable grace period and the Lessee shall pay the Port
Authority's cost thereof on demand. If the Port Authority has paid any sum or
sums or has incurred any obligations, expense or cost which the Lessee has
agreed to pay or reimburse the Port Authority for, or if the Port Authority is
required or elects to pay any sum or sums or incurs any obligations, expense or
cost by reason of the failure, neglect or refusal of the Lessee to perform or
fulfill any one or more of the conditions, covenants or agreements contained in
this Agreement, or as a result of an act or omission of the Lessee contrary to
the said conditions, covenants and agreements, including any legal expense or
cost in connection with any actions or proceeding brought by the Port Authority
against the Lessee or by third parties against the Port Authority, the Lessee
agrees to pay the sum or sums so paid or the expense and the Port Authority's
cost so incurred, including all interest costs, damages and penalties, and the
same may be added to any installment of rent thereafter due hereunder and each
and every part of the same shall be and become additional rent, recoverable by
the Port Authority in the same manner and with like remedies as if it were
originally a part of the basic rental as set forth in the Section of this
Agreement entitled "Basic Rental".
(b) "Cost" or "costs" of the Port Authority in this Agreement shall
mean and include (1) payroll costs including but not limited to contributions to
the retirement system, or the cost of participation in other pension plans or
systems, insurance costs, sick leave pay, holiday, vacation, authorized absence
pay or other fringe benefits; (2) cost of materials, supplies and equipment used
(including rental thereof); (3) payments to contractors; (4) any other direct
costs; and (5) 30% of the foregoing.
Section 16. Rights of Entry Reserved
(a) The Port Authority, by its officers, employees, agents,
representatives and contractors shall have the right at all reasonable times and
upon reasonable oral notice to enter upon the premises for the purpose of
inspecting the same, for observing the performance by the Lessee of its
obligations under this Agreement, and for the doing of any act or thing which
the Port Authority may be obligated or have the right to do under this Agreement
or otherwise.
(b) Without limiting the generality of the foregoing, the Port
Authority, by its officers, employees, representatives and contractors, shall
have the right, for its own benefit, for the benefit of the Lessee or for the
benefit of others at the World Trade Center, to maintain initially existing and
future utility, mechanical, electrical, communication and other systems or
portions thereof on the premises, and to enter upon the premises at all
reasonable times to make such repairs, alterations and replacements as may, in
the opinion of the Port Authority, be deemed necessary or advisable and, from
time to time, to construct or install over, in, under or through the premises
new lines, pipes, mains, wires, conduits; equipment and other such; and to use
the premises for access to other portions of the World Trade Center not
otherwise conveniently accessible; and to take all material into and upon the
premises that may be required for such repairs, alterations and replacements;
provided, however, that such repair, alteration, replacement, construction or
access shall not unreasonably interfere with the use of the premises by the
Lessee.
-11-
<PAGE>
(c) in the event that any property of the Lessee shall obstruct the
access of the Port Authority, its employees, agents or contractors to any of the
existing or future utility, mechanical, electrical, communication and other
systems and thus shall interfere with the inspection, maintenance, repair or
modification of any such system, the Lessee shall move such property as
requested by the Port Authority, in order that the access may be had to the
system or part thereof for its inspection, maintenance, repair or modification.
(d) Nothing in this Section shall or shall be construed to impose
upon the Port Authority any obligations so to construct or maintain or to make
repairs, replacements, alterations or additions, or shall create any liability
for any failure so to do. The Lessee is and shall be in exclusive control and
possession of the premises and the Port Authority shall not in any event be
liable for any injury or damage to any property or to any person happening on or
about the premises nor for any injury or damage to the premises nor to any
property of the Lessee or of any other person located therein or thereon (other
than those occasioned by the negligent acts of the Port Authority).
(e) At any time and from time to time during normal business hours
within the six (6) months next preceding the expiration of the letting, the Port
Authority, by its agents and employees, whether or not accompanied by
prospective lessees, occupiers or users of the premises, shall have the right to
enter thereon for the purpose of exhibiting and viewing all parts of the same.
(f) If, during the last month of the letting, the Lessee shall have
removed all or substantially all of the Lessee's property from the premises, the
Port Authority may immediately enter and alter, renovate and redecorate the
premises and change locks on doors in the premises.
(g) The exercise of any or all of the foregoing rights by the Port
Authority or others shall not be or be construed to be an eviction of the Lessee
nor be made the grounds for any abatement of rental or any claim or demand for
damages, consequential or otherwise.
Section 17. Condemnation
(a) In any action or proceeding instituted by any governmental or
other authorized agency or agencies for the taking for a public use of any
interest in all or any part of the premises, or in case of any deed, lease or
other conveyance in lieu thereof (all of which are in this Section referred to
as "taking or conveyance") the Lessee shall not be entitled to assert any claim
to any compensation, award or part thereof made or to be made therein or
therefor or any claim to any consideration or rental or any part thereof paid
therefor, or to institute any action or proceeding or to assert any claim
against such agency or agencies or against the Port Authority for or on account
of any such taking or conveyance, except for a possible claim to an award for
moving expenses or for trade fixtures owned and installed by the Lessee,
provided that such claim is independent of and in addition to any claim of the
Port Authority and provided further that the Port Authority's award is not
thereby reduced or otherwise adversely affected, it being understood and agreed
between the Port Authority and the Lessee that except for such claims the Port
Authority shall be entitled to all the compensation or awards made or to be made
or paid and all such consideration or rentals, free of any claim or right of the
Lessee. No taking by or delivery to any governmental authority under this
paragraph (a) shall be or be construed to be an eviction of the Lessee or be the
basis for any claim by the Lessee for damages, consequential or otherwise.
(b) in the event of a taking or conveyance of the entire premises by
any governmental or other authorized agency or agencies, then the letting under
this Agreement shall, as of the date possession is taken from the Port Authority
by such agency or agencies, cease and determine in the same manner and with the
same effect as if the term of the letting had on that date expired.
(c) In the event of a taking or conveyance by any governmental or
other authorized agency or agencies of a part of the premises then the letting
as to such part only shall, as of the date possession thereof is taken from the
Port Authority by such agency or agencies, cease and
-12-
<PAGE>
WTC-SOL3195
determine, and the rental thereafter to be paid by the Lessee to the Port
Authority shall be abated as provided in the Section of this Agreement entitled
"Abatement of Rental" from and after the date of such taking or conveyance.
(d) In the event that the taking or conveyance or the delivery by
the Lessee or taking by the Port Authority pursuant to the Section of this
Agreement entitled "Governmental Compliance" covers fifty percent (50%) or more
of the total usable area of the premises, then the Lessee and the Port Authority
shall each have an option exercisable by notice given within ten (10) days after
such taking or conveyance, to terminate the letting hereunder, as of the date of
such taking, and such termination shall be effective as if the date of such
taking were the original date of expiration hereof.
Section 18. Abatement of Rental
(a) In the event that the Lessee shall at any time become entitled
to an abatement of rent, the basic rental set forth in the Section of this
Agreement entitled "Basic Rental" and the additional basic rental set forth in
Schedule A attached to this Agreement shall be abated for the period the
abatement is in effect by the same percentage that the area of the part of the
premises the use of which is denied to the Lessee is of the total area of the
premises.
(b) For the purposes of this Section, the number of square feet
contained in the premises or parts thereof shall be computed as follows: By
measuring from the inside surface of outer building walls to the surface of the
public area side, or of the non-exclusive area side, as the case may require, of
all partitions separating the space measured from adjoining areas designated for
the use of the public or for use by the Lessee in common with others, and to the
center of partitions separating the space measured from adjoining space
exclusively used by others; no deduction will be made for columns, partitions,
pilasters or projections necessary to the building and contained within the
space measured. Permanent partitions enclosing elevator shafts, stain,
fire-towers, vents, pipe-shafts, meter-closets, flues, stacks and any vertical
shafts have the same relation to the space measured as do outer building walls.
(c) In the event that during the term of the letting under this
Agreement the Lessee shall be partially evicted and shall remain in possession
of the premises or the balance thereof, the Lessee agrees that notwithstanding
it might have the right to suspend payment of the rent in the absence of this
provision, it agrees to pay and will pay at the times and in the manner herein
provided, the full rent reserved less only an abatement thereof computed in
accordance with the above.
Section 19. Assignment and Sublease
(a) The Lessee shall not assign, sell, convey, transfer, mortgage,
or pledge this Agreement or any part thereof, or any rights created thereby or
the letting, or any part thereof, without the prior written consent of the Port
Authority. The transfer of a majority of the issued and outstanding capital
stock of any corporate Lessee, or of a corporate subtenant, or the transfer of a
majority of the total interest in any partnership Lessee or subtenant, however
accomplished, whether in a single transaction or in a series of related or
unrelated transactions, shall be deemed an assignment of this Agreement, or of
such sublease, as the case may be, except that the transfer of the outstanding
capital stock of any corporate Lessee, or subtenant, shall be deemed not to
include the sale of such stock through the "over-the-counter-market" or through
any recognized stock exchange by persons or parties other than those deemed
"insiders" within the meaning of the Securities Exchange Act of 1934 as amended.
The assignment to a corporation into or with which the Lessee is merged or
consolidated should not be deemed a violation of this paragraph (a) provided
such assignment is required in connection with such merger and/or consolidation
and the conditions set forth in Section 20(a)(5) are met.
(b) The Lessee shall not sublet the premises, or any part thereof,
without the prior written consent of the Port Authority.
-13-
<PAGE>
WTC-SOL3195
(c) Notwithstanding the provisions of paragraph (a) or paragraph
(b) of this Section 19 the Lessee shall have the right to assign this Agreement
and the letting hereunder in its entirety to, or to sublet to or to permit the
use of desk space by a person or corporation which owns all of the issued and
outstanding shares of the capital stock of the Lessee; a corporation of which
the Lessee owns all of the issued and outstanding shares of capital stock or a
corporation of which all of the issued and outstanding shares of capital stock
is owned by the same person or corporation which owns all of the issued and
outstanding shares of capital stock of the Lessee; such assignment, subleasing
or desk space use to continue only as long as the said person or corporation
continues in one of the above described relationships to the Lessee provided
that any such Assignee, Sublessee or desk-space user of the premises shall use
the premises solely for the purposes set forth in Section 3 of this Agreement
and for no other purpose whatsoever, provided however that such assignment shall
not be effective until an agreement in the form attached hereto as Exhibit Y has
been executed by the Port Authority, the Lessee and the proposed assignee and
such subleasing shall not be effective until an agreement in the form attached
hereto as Exhibit X has been executed by the Port Authority, the Lessee and the
proposed subtenant. The Lessee, and the assignee, or the subtenant, or the
desk-space user, as the case may be, shall furnish to the Port Authority such
information, data and documents as may be requested by the Port Authority from
time to time to substantiate the relationship between the Lessee and such
assignee, subtenant or desk-space user.
(d) If the Lessee assigns, sells, conveys, transfers, mortgages,
pledges or sublets in violation or paragraphs (a) or (b) of this Section or if
the premises are occupied by anybody other than the Lessee, the Port Authority
may collect rent from any assignee, sublessee or anyone who claims a right to
this Agreement or letting or who occupies the premises, and shall apply the net
amount collected to the basic rental herein reserved; and no such collection
shall be deemed a waiver by the Port Authority of the covenants contained in
paragraphs (a) and (b) of this Section nor an acceptance by the Port Authority
of any such assignee, sublessee, claimant or occupant as Lessee, nor a release
of the Lessee by the Port Authority from further performance by the Lessee of
the covenants contained herein. The granting of consent by the Port Authority to
any assignment or subletting shall not be deemed to operate as a waiver of the
requirement for obtaining the express prior written consent of the Port
Authority to any other or subsequent assignment or subletting.
(e) The Lessee shall not use, or permit any person to use, the
premises or any portion thereof, except for the purposes set forth in the
Section of this Agreement entitled "Rights of User by the Lessee."
Section 20. Termination
(a) If any one or more of the following events shall occur, that is
to say:
(1) The Lessee shall become insolvent, or shall take the
benefit of any present or future insolvency statute, or shall make a
general assignment for the benefit of creditors, or file a voluntary
petition in bankruptcy or a petition or answer seeking an arrangement or
its reorganization or the readjustment of its indebtedness under the
federal bankruptcy laws or under any other law or statute of the United
States or of any State thereof, or consent to the appointment of a
receiver, trustee, or liquidator of all or substantially all its property;
or
(2) By order or decree of a court the Lessee shall be adjudged
bankrupt or an order shall be made approving a petition filed by any of
the creditors or, if the Lessee is a corporation, by any of the
stockholders of the Lessee, seeking its reorganization or the readjustment
of its indebtedness under the federal bankruptcy laws or under any law or
statute of the United States or of any State thereof; or
(3) A petition under any part of the federal bankruptcy laws
or an action under any present or future insolvency law or statute shall
be filed against the Lessee and shall not be dismissed within thirty (30)
days after the filing thereof; or
-14-
<PAGE>
WTC-SOL3195
(4) The letting hereunder or the interest or estate of the
Lessee under this Agreement shall be transferred to, pass to or devolve
upon, by operation of law or otherwise, any other person, firm or
corporation except to the extent permitted under the Section of this
Agreement entitled "Assignment and Sublease"; or
(5) The Lessee, if a corporation, shall, without the prior
consent of the Port Authority, become a possessor or merged corporation in
a merger, a constituent corporation in a consolidation, or a corporation
in dissolution, unless the corporation resulting from such merger or
consolidation has a financial standing as of the date of the merger or
consolidation at least as good as that of the Lessee, by which is meant
that its ratio of current assets to current liabilities, its ratio of
fixed assets to fixed liabilities and its net worth shall each be at least
as favorable as that of the Lessee; or
(6) The Lessee is a partnership, and the said partnership
shall be dissolved as the result of any act or omission of its partners or
any of them, or by operation of law or the order or decree of any court
having jurisdiction, or for any other reason whatsoever; or
(7) By or pursuant to, or under authority of any legislative
act, resolution or rule, or any order or decree of any court or
governmental board, agency or officer, a receiver, trustee, or liquidator
shall take possession or control of all or substantially all the property
of the Lessee, or any execution or attachment shall be issued against the
Lessee or any of its property, whereupon possession of the premises shall
be taken by someone other than the Lessee, and any such possession or
control shall continue in effect for a period of fifteen (15) days; or
(8) Any lien is filed against the premises because of any act
or omission of the Lessee and is not removed or bonded within ten (10)
days after notice thereof from the Port Authority; or
(9) If this Agreement shall require a guarantor of one or more
of the Lessee's obligations under this Agreement and any of the events
described in subparagraphs (l), (2), (3) or (7) above shall occur to or
with respect to the guarantor (whether or not they shall also occur to or
with respect to the Lessee); or
(10) The Lessee shall fail duly and punctually to pay the
rentals or to make any other payment required hereunder when due to the
Port Authority and such failure shall continue for a period of five (5)
days after the Port Authority shall have given the Lessee a statement
therefor; or
(11) The Lessee shall fail to keep, perform and observe each
and every other promise, covenant and agreement set forth in this
Agreement on its part to be kept, performed, or observed, within ten (10)
days after receipt of notice of default thereunder from the Port Authority
(except where fulfillment of its obligation requires activity over a
period of time, and the Lessee shall have commenced to perform whatever
may be required for fulfillment within ten (10) days after receipt of
notice and continues diligently such performance without interruption
except for muses beyond its control);
then upon the occurrence of any such event or at any time thereafter during the
continuance thereof, the Port Authority may by five (5) days' notice terminate
the letting, such termination to be effective upon the date specified in such
notice. Such right of termination and the exercise thereof shall be and operate
as a conditional limitation.
(b) If any of the events enumerated in paragraph (a) of this Section
shall occur prior to the Commencement Date, the Lessee shall not be entitled to
enter into possession of the premises and the Port Authority upon the occurrence
of any such event or at any time thereafter during the continuance thereof by
twenty-four (24) hours' notice may cancel the interest of the Lessee under this
Agreement, such cancellation to be effective upon the date specified in such
notice.
-15-
<PAGE>
WTC-SOL3195
(c) No acceptance by the Port Authority of rentals, fees, charges or
other payments in whole or in part for any period or periods after a default in
any of the terms, covenants and conditions to be performed, kept or observed by
the Lessee shall be deemed a waiver of any right on the part of the Port
Authority to terminate the letting.
(d) No waiver by the Port Authority of any default on the part of
the Lessee in performance of any of the terms, covenants or conditions hereof to
be performed, kept or observed by the Lessee shall be or be construed to be a
waiver by the Port Authority of any other or subsequent default in performance
of any of the said terms, covenants and conditions.
(e) The rights of termination described above shall be in addition
to any other rights of termination provided in this Agreement and in addition to
any rights and remedies that the Port Authority would have at law or in equity
consequent upon any breach of this Agreement by the Lessee, and the exercise by
the Port Authority of any right of termination shall be without prejudice to any
other such rights and remedies.
(f) The Lessee hereby waives its right to trial by jury in any
summary proceeding or action that may hereafter be instituted by the Port
Authority against the Lessee in respect of the premises or in any action that
may be brought by the Port Authority to recover rent, damages, or other sums
payable hereunder. The Lessee shall not interpose any claims as counterclaims in
any summary proceeding or action for non-payment of rental which may be brought
by the Port Authority unless such claims would be deemed waived if not so
interposed.
Section 21. Right of Re-entry
The Port Authority shall, as an additional remedy upon the giving of
a notice of termination as provided in the Section of this Agreement entitled
"Termination", have the right to re-enter the premises and every part thereof
upon the effective date of termination without further notice of any kind, and
may regain and resume possession either with or without the institution of
summary or any other legal proceedings or otherwise. Such re-entry, or regaining
or resumption of possession, however, shall not in any manner affect, alter or
diminish any of the obligations of the Lessee under this Agreement, and shall in
no event constitute an acceptance of surrender.
Section 22. Survival of the Obligations of the Lessee
(a) In the event that the letting shall have been terminated in
accordance with a notice of termination as provided in the Section of this
Agreement entitled "Termination", or the interest of the Lessee cancelled
pursuant thereto, or in the event that the Port Authority has re-entered,
regained or resumed possession of the premises in accordance with the provisions
of the Section of this Agreement entitled "Right of Re-entry", all the
obligations of the Lessee under this Agreement shall survive such termination or
cancellation, re-entry, regaining or resumption of possession and shall remain
in full force and effect for the full term of this Agreement, and the amount or
amounts of damages or deficiency shall become due and payable, as more
specifically stated in paragraph (b) below, to the Port Authority to the same
extent, at the same time or times and in the same manner as if no termination,
cancellation, re-entry, regaining or resumption of possession had taken place.
(b) Immediately upon any termination or cancellation pursuant to the
Section of this Agreement entitled "Termination", or upon any re-entry,
regaining or resumption of possession in accordance with the Section of this
Agreement entitled "Right of Re-entry", there shall become due and payable by
the Lessee to the Port Authority, in addition to rental accrued prior to the
effective date of termination, without notice or demand and as damages, the sum
of the following:
(1) subject to the provisions of paragraph (c) below, an amount
equal to the then present value of all basic rental provided for in this
Agreement for the entire term, following the effective date of
termination, as originally fixed in the Section of this
-16-
<PAGE>
WTC-SOL3195
Agreement entitled "Term" less the amount thereof which may have been
actually paid by the Lessee;
(2) the amount of all other unfulfilled monetary obligations of the
Lessee under this Agreement, including without limitation thereto, all
sums constituting additional rental hereunder and the cost to and expenses
of the Port Authority for fulfilling all other obligations of the Lessee
which would have accrued or matured during the balance of the term or on
the expiration date originally fixed or within a stated time after
expiration or termination; and
(3) an amount equal to the cost to and the expenses of the Port
Authority in connection with the termination, cancellation, regaining
possession and restoring and reletting the premises, the Port Authority's
legal expenses and cost including the costs to the Port Authority of its
in-house counsel, and the Port Authority's cost and expenses for the care
and maintenance of the premises during any period of vacancy, and any
brokerage fees and commissions in connection with any reletting.
(c) The Port Authority may at any time bring an action to recover
all the damages as set forth above not previously recovered in separate actions,
or it may bring separate actions to recover the items of damages set forth in
subparagraphs (2) and (3) of paragraph (b) above and separate actions
periodically to recover from time to time only such portion of the damages set
forth in subparagraph (1) of paragraph (b) above as would have accrued as rental
up to the time of the action if there had been no termination or cancellation.
In any such action the Lessee shall be allowed a credit against its survived
damages obligations equal to the amounts which the Port Authority shall have
actually received from any tenant, licensee, permittee or other occupier of the
premises or a part thereof during the period for which damages are sought, and
if recovery is sought for a period subsequent to the date of suit a credit equal
to the market rental value of the premises during such period (discounted to
reflect the then present value thereof). If at the time of such action the Port
Authority has relet the premises, the rental for the premises obtained through
such reletting shall be deemed to be the market rental value of the premises or
be deemed to be the basis for computing such market rental value if less than
the entire premises were relet. In no event shall any credit allowed to the
Lessee against its damages for any period exceed the then present value of the
basic rental which would have been payable under this Agreement during such
period if a termination or cancellation had not taken place. In determining
present value of rental an interest rate of 4% per annum shall be used.
Section 23. Reletting by the Port Authority
The Port Authority, upon termination or cancellation pursuant to the
Section of this Agreement entitled "Termination", or upon any re-entry,
regaining or resumption of possession pursuant to the Section of this Agreement
entitled "Right of Re-entry", may occupy the premises or may relet the premises,
and shall have the right to permit any person, firm or corporation to enter upon
the premises and use the same. The Port Authority may grant free rental or other
concessions and such reletting may be of part only of the premises or of the
premises or a part thereof together with other space, and for a period of time
the same as or different from the balance of the term hereunder remaining, and
on terms and conditions and for purposes the same as or different from those set
forth in this Agreement. The Port Authority shall also, upon termination or
cancellation pursuant to the Section of this Agreement entitled "Termination",
or upon its re-entry, regaining or resumption of possession pursuant to the
Section of this Agreement entitled "Right of Re-entry", have the right to repair
or to make structural or other changes in the premises, including changes which
alter the character of the premises and the suitability thereof for the purposes
of the Lessee under this Agreement, without affecting, altering or diminishing
the obligations of the Lessee hereunder. In the event either of any reletting or
of any actual use and occupancy by the Port Authority (the mere right to use and
occupy not being sufficient however) there shall be credited to the account of
the Lessee against its survived obligations hereunder any net amount remaining
after deducting from the amount actually received from any lessee, licensee,
permittee or other occupier as the rental of fee for the use of the said
premises or portion thereof during the balance of the letting as the same is
originally stated in this Agreement, or from the market value of the occupancy
of such portion of the premises as the Port Authority nay during
-17-
<PAGE>
WTC-SOL3195
such period actually use and occupy, all expenses, costs and disbursements
incurred or paid by the Port Authority in connection therewith. No such
reletting or such use and occupancy shall be or be construed to be an acceptance
of a surrender.
Section 24. Waiver of Redemption
The Lessee hereby waives any and all rights of redemption, granted
by or under any present or future law, arising in the event it is evicted or
dispossessed for any cause, or in the event the Port Authority obtains or
retains possession of the premises in any lawful manner.
Section 25. Remedies and Suits Against the Lessee
All remedies provided in this Agreement shall be deemed cumulative
and additional and not in lieu of or exclusive of each other or of any other
remedy available to the Port Authority at law or in equity. In the event of a
breach or threatened breach by the Lessee of any term, covenant, condition or
provision of this Agreement, the Port Authority shall have the right of
injunction and the right to invoke any other remedy allowed by law or in equity
as if termination, re-entry, summary proceedings and any other specific remedies
including without limitation thereto, indemnity and reimbursement, were not
mentioned herein, and neither the mention thereof nor the pursuance or exercise
or failure to pursue or exercise any right or remedy shall preclude the
pursuance or exercise of any other right or remedy.
Section 26. Surrender
(a) The Lessee covenants and agrees to yield and deliver peaceably
to the Port Authority possession of the premises on the date of the cessation of
the letting, whether such cessation be by termination, expiration or otherwise,
promptly and in the same condition as at the time the Lessee entered into
possession, such reasonable wear excepted as would not adversely affect or
interfere with the efficient and proper utilization of the premises or any part
thereof.
(b) Unless the same are required for the performance by the Lessee
of its obligations hereunder, the Lessee shall have the right at any time during
the letting to remove from the premises, and, on or before the expiration or
earlier termination of the letting, shall so remove its equipment, removable
fixtures and other personal property, and all property of third persons for
which it is responsible, repairing all damages caused by such removal. If the
Lessee shall fail to remove such property on or before the termination or
expiration of the letting, the Port Authority shall have the same rights with
respect to such property as it has in the event of casualty under paragraph (d)
of the Section of this Agreement entitled "Casualty".
Section 27. Acceptance of Surrender of Lease
No agreement of surrender or to accept a surrender shall be valid
unless and until the same shall have been reduced to writing and signed by the
duly authorized representatives of the Port Authority and of the Lessee. Except
as expressly provided in this Section, neither the doing of, nor any omission to
do, any act or thing, by any of the officers, agents or employees of the Port
Authority, shall be deemed an acceptance of a surrender of the letting or of
this Agreement. Without limiting the foregoing, no employee or officer of the
Port Authority shall be authorized to accept the keys of the premises prior to
the expiration date of the letting as fixed in the Section of this Agreement
entitled "Term" and no delivery of the keys by the Lessee shall constitute a
termination of this Agreement or acceptance of surrender.
Section 28. Brokerage
The Lessee represents and warrants that no broker other than the
broker named on the first page of this Agreement (if any) has been concerned in
the negotiation or execution of this Agreement or in connection with the letting
of the premises hereunder and that there is no broker other than the broker
named on the first page of this Agreement (if any) who is or may be entitled to
be paid a commission in connection therewith. The Lessee shall indemnify and
save harmless the Port Authority from any claims for commission or brokerage
made by any and all
-18-
<PAGE>
WTC-SOL3195
persons, firms or corporations whatsoever for services in connection with the
negotiation and execution of this Agreement or in connection with the letting of
the premises hereunder except for a claim of the broker named on the first page
of this Agreement (if any) provided such claim is made in accordance with the
terms of an agreement between such broker and the Port Authority bearing the
same date as this Agreement.
Section 29. Notices
(a) Notices, requests, permissions, consents and approvals given or
required to be given to or by either party under this Agreement, shall not be
effective unless they are given in writing, and all such notices and requests
shall be (i) personally delivered to the party or a duly designated officer or
representative of such party; or (ii) delivered to the office of such party,
officer or representative during regular business hours; or (iii) if directed to
the Lessee, delivered at the premises at any time; or (iv) forwarded to such
party, officer or representative at the office or residence address by
registered or certified mail. The Lessee shall designate an office within the
Port of New York District and an officer or representative whose regular place
of business is at such office. Until further notice, the Port Authority hereby
designates its Executive Director, and the Lessee designates the person named as
representative on the first page hereof as their respective officers or
representatives upon whom notices and requests may be served, and the Port
Authority designates its office at One World Trade Center, New York, New York
10048, and the Lessee designates its office at its address stated on the first
page hereof, as their respective offices where notices and requests may be
served.
(b) If any notice is delivered, such notice shall be deemed to have
been given or made on the date delivered and if any notice is mailed, such
notice shall be deemed to have been given or made on the second day after the
day the notice is so mailed.
Section 30. Payments
(a) All payments required of the Lessee by this Agreement shall be
made to the Port Authority and mailed to The Port Authority of New York and New
Jersey, P.0. Box 17309, Newark, New Jersey 07194, or to such office or address
as may be substituted therefor.
(b) No payment by the Lessee or receipt by the Port Authority of a
lesser rental amount than that which is due and payable under the provisions of
this Agreement at the time of such payment shall be deemed to be other than a
payment on account of the earliest rental then due, nor shall any endorsement or
statement on any check or in any letter accompanying any check or payment be
deemed an accord and satisfaction, and the Port Authority may accept such check
or payment without prejudicing in any way its right to recover the balance of
such rental or to pursue any other remedy provided in this Agreement or by law.
Section 31. Subordination
This Agreement and the letting hereunder are and shall be subject
and subordinate to all mortgages which may now or hereafter affect the premises
or the World Trade Center, and to all renewals, modifications, consolidations,
replacements and extensions thereof, and although the provisions of this Section
shall be deemed to be self-operating and effective for all purposes without any
further instrument on the part of the Lessee, the Lessee shall execute on demand
and without expense to the Port Authority such further instruments confirmatory
of the provisions of this Section as the Port Authority may request.
Section 32. Quiet Enjoyment
The Port Authority covenants and agrees that as long as it remains
the owner of the World Trade Center, the Lessee, upon paying all rentals
hereunder and performing all the covenants, conditions and provisions of this
Agreement on its part to be performed, shall and may peaceably and quietly have,
hold and enjoy the premises free of any act or acts of the Port Authority except
as expressly permitted in this Agreement.
-19-
<PAGE>
STC-SOL3195
Section 33. Non-Liability of Individuals
Neither the Commissioners of the Port Authority nor any of them,
nor any officer, agent or employee thereof, shall be charged personally by the
Lessee with any liability or held liable to it under any term or provision of
this Agreement, or because of its execution or attempted execution, or because
of any breach or attempted or alleged breach thereof.
Section 34. Headings
The section headings and the paragraph headings, if any, are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope or intent of any provision hereof.
Section 35. Construction and Application of Terms
(a) Wherever in this Agreement a third person singular neuter
pronoun or adjective is used referring to the Lessee, the same shall be taken
and understood to refer to the Lessee, regardless of the actual gender or number
thereof.
(b) If more than one individual or other legal entity is the Lessee
under this Agreement, each and every obligation hereof shall be the joint and
several obligation of each such individual or other legal entity.
(c) This Agreement does not constitute the Lessee, the agent or
representative of the Port Authority for any purpose whatsoever.
(d) All designations of time herein contained shall refer to the
time-system then officially in effect in the municipality wherein the premises
are located.
(e) No greater rights or privileges with respect to the use of the
premises or any part thereof or with respect to the World Trade Center are
granted or intended to be granted to the Lessee by this Agreement, or by any
provision thereof, than the rights and privileges expressly granted hereby.
Section 36. Definitions
The following terms, when used in this Agreement, shall have the
respective meanings given below:
(a) "World Trade Center" shall mean the building complex constructed
by the Port Authority within the area in the Borough of Manhattan, City, County
and State of New York, bounded generally by the east side of Church Street on
the east, the south side of Liberty Street and the south side of Liberty Street
extended on the south, the Hudson River on the west, and on the north by a line
beginning at the point of intersection of the Hudson River and the north side of
Vesey Street extended, running along the north side of Vesey Street extended and
the north side of Vesey Street to the west side of Washington Street, then
along the west side of Washington Street to the north side of Barclay Street,
then along the north side of Barclay Street to the east side of West Broadway,
then along the east side of West Broadway to the north side of Vesey Street,
then along the north side of Vesey Street to the east side of Church Street,
together with such additional contiguous area as may be agreed upon from time to
time between the Port Authority and the said City of New York.
(b) The phrase "utility, mechanical, electrical, communication and
other systems" shall mean and include (without limitation thereto) the
following: machinery, engines, dynamos, boilers, elevators, escalators,
incinerators and incinerator flues, systems for the supply of fuel, electricity,
water, gas and steam, plumbing, heating, sewerage, drainage, ventilating, air
conditioning, communications, fire-alarm, fire-protection, sprinkler, telephone,
telegraph and other systems, fire hydrants, fire hoses, and their respective
wires, mains, conduits, lines, tubes, pipes, equipment, motors, cables, fixtures
and other equipment.
-20-
<PAGE>
WTC-SOL3195
(c) "Causes or conditions beyond the control of the Port Authority",
shall mean and include acts of God, the elements, weather conditions, tides,
earthquakes, settlements, fire, acts of governmental authority, war, shortage of
labor or materials, acts of third parties for which the Port Authority is not
responsible, injunctions, strikes, boycotts, picketing, slowdowns, work
stoppages, labor troubles or disputes of every kind (including all those
affecting the Port Authority, its contractors, suppliers or subcontractors) or
any other condition or circumstances, whether similar to or different from the
foregoing (it being agreed that the foregoing enumeration shall not limit or be
characteristic of such conditions or circumstances) which is beyond the control
of the Port Authority or which could not be prevented or remedied by reasonable
effort and at reasonable expense.
(d) "Normal business hours" shall mean 8:00 o'clock A.M. to 6:00
o'clock P.M. Mondays to Fridays inclusive, legal holidays as defined in Exhibit
R excepted.
Section 37. Liability Insurance
(a) The Lessee shall not do or permit to be done any act or thing
upon the premises or at the World Trade Center which will invalidate or conflict
with any insurance policies covering the premises or any part thereof, or the
World Trade Center, or any part thereof, which, in the opinion of the Port
Authority, may constitute an extra-hazardous condition, so as to increase the
risks normally attendant upon the operations contemplated by the Section of this
Agreement entitled "Rights of User by the Lessee", and the Lessee shall promptly
observe, comply with and execute the provisions of any and all present and
future rules and regulations, requirements, orders and directions of the
National Fire Protection Association and the Insurance Services Office, Inc. and
of any other board or organization exercising or which may exercise similar
functions, which may pertain or apply to the operations of the Lessee on the
premises, and the Lessee shall, subject to and in accordance with the provisions
of the Section of this Agreement entitled "Construction by the Lessee", make any
and all improvements, alterations or repairs of the premises that may be
required at any time hereafter by any such present or future rule, regulation,
requirement, order or direction, and if by reason of any failure on the part of
the Lessee to comply with the provisions of this Agreement any insurance rate on
the premises or any part thereof or on the World Trade Center or any part
thereof, shall at any time be higher than it otherwise would be, then the Lessee
shall pay to the Port Authority, as an item of additional rental, that part of
all insurance premiums paid by the Port Authority which shall have been charged
because of such violation or failure by the Lessee, but no such payment shall
relieve the Lessee of its other obligations under this paragraph.
(b) (i) The Lessee in its own name as assured shall secure and keep
in full force and effect throughout the term of the letting under this
Agreement, at Lessee's sole cost and expense, (a) a policy of comprehensive
general liability insurance including a contractual liability endorsement for
such coverage as may reasonably be stipulated from time to time by the Port
Authority covering the Lessee's operations hereunder which shall be effective
throughout the letting under this Agreement and shall initially be in a combined
single limit of not less than $1,000,000 for liability for bodily injury, for
wrongful death and for property damage arising from any one occurrence; and (b)
a fire or other casualty policy insuring the full replacement value of all
construction, installation and finishing work performed by the Lessee in the
premises and the Lessee's furniture, trade fixtures, equipment and other
personal property, such insurance to include a replacement cost endorsement,
with a deductible of no more than $1,000 against loss or damage by fire and
theft and such other risks or hazards as are insurable under present or future
forms of "All Risk" insurance policies.
(ii) The Port Authority shall be included as an additional
insured in any policy of liability insurance required by this Section. The
Lessee shall have the right to insure and maintain the insurance coverages set
forth in this Section under blanket insurance policies covering the premises and
other space occupied by Lessee, if any, so long as such blanket policies comply
in all respects with the insurance provisions set forth in this Agreement;
provided that upon request, Lessee shall deliver to the Port Authority a
certificate of Lessee's insurer evidencing the portion of such blanket policy of
insurance allocated to the premises.
-21-
<PAGE>
WTC-SOL3195
(iii) As to any insurance required by this Section, a
certified copy of each of the policies or a certificate or certificates
evidencing the existence thereof (including all required endorsements and
evidence of the waivers of subrogation required by paragraph (c) of this
Section), or binders, shall be delivered to the Port Authority within twenty
(20) days prior to the commencement date of the letting hereunder. In the event
any binder is delivered, it shall be replaced within thirty (30) days by a
certified copy of the policy or a certificate including said endorsements and
such waiver of subrogation. Within thirty (30) days after request of the Port
Authority made at any time during the term of the letting under this Agreement
the Lessee shall deliver a certified copy of the policy to the Port Authority.
Each such copy or certificate shall contain endorsements that (a) the policy may
not be cancelled, terminated, changed or modified without giving ten (10) days
written advance notice thereof to the Port Authority; (b) the insurer shall not,
without obtaining express advance permission from the General Counsel of the
Port Authority, raise any defense involving in any way the jurisdiction of the
tribunal over the person of the Port Authority, the immunity of the Port
Authority, its Commissioners, officers, agents or employees, the governmental
nature of the Port Authority or the provisions of any statutes respecting suits
against the Port Authority; and (c) Lessee shall be solely responsible for the
payment of premiums therefor notwithstanding that the Port Authority is named as
an additional insured. A renewal policy shall be delivered to the Port Authority
at least fifteen (15) days prior to the expiration date of each expiring policy,
except for any policy expiring after the date of expiration of the letting. If
at any time any of the policies shall be or become unsatisfactory to the Port
Authority as to form or substance, or if any of the carriers issuing such
policies shall be or become unsatisfactory to the Port Authority, the Lessee
shall promptly obtain a new and satisfactory policy in replacement. A carrier
shall be deemed satisfactory to the Port Authority if it has and maintains a
rating by Best's Insurance Reports or any successor publication of comparable
standing of "A-X" or better or the then equivalent of such rating.
(c) Each party shall include in each of its insurance policies
covering loss, damage or destruction by fire or other casualty (insuring the
World Trade Center and the Port Authority's property therein in the case of the
Port Authority, and insuring the Lessee's property required to be insured by
Lessee under paragraph (b) above in the case of the Lessee) a waiver of the
insurer's right of subrogation against the other party or, if such waiver should
be unobtainable or unenforceable, (i) an express agreement that such policy
shall not be invalidated if the insured waives before the casualty the right of
recovery against any party responsible for a casualty covered by such policies,
or (ii) any other form of permission for the release of the other party. If any
party hereto is unable to obtain such waiver, agreement or permission without
additional charge, then such party shall be relieved from providing such waiver,
agreement or permission unless the other party shall so elect and shall pay the
carrier's additional charge therefor.
(d) Each party hereby releases the other party with respect to any
claim (including a claim for negligence) which it might otherwise have against
the other party for loss, damage or destruction with respect to its property
(including business interruption) occurring during the term of the letting under
this Agreement and with respect and to the extent to which it is insured under a
policy or policies containing a waiver of subrogation or permission to release
liability as provided in paragraph (c) above.
(e) Nothing contained in said paragraphs (c) or (d) above of this
Section shall be deemed to impose upon either party any duty to procure or
maintain any of the kinds of insurance referred to therein except as otherwise
required in this Section. If the Lessee shall fail to maintain insurance in
effect as required in this Section, the release by the Lessee set forth in
paragraph (d) above of this Section shall be in full force and effect to the
same extent as if such required insurance (containing a waiver of subrogation)
were in effect. Notwithstanding anything to the contrary contained in this
Agreement, the carrying of insurance by the Lessee in compliance with this
Section shall not modify, reduce, limit or impair the Lessee's obligations and
liability under the Section of this Agreement entitled "Indemnity".
-22-
<PAGE>
WTC-SOL3195
Section 38. Late Charges
If the Lessee should fail to pay any amount required under this
Agreement when due to the Port Authority, including without limitation any
payment of basic, percentage or other rental or any payment of utility or other
charges or if any such amount is found to be due as the result of an audit,
then, in such event, the Port Authority may impose (by statement, bill or
otherwise) a late charge with respect to each such unpaid amount for each late
charge period (hereinbelow described) during the entirety of which such amount
remains unpaid, each such late charge not to exceed an amount equal to
eight-tenths of one percent of such unpaid amount for each late charge period.
There shall be twenty-four late charge periods on a calendar year basis; each
late charge period shall be for a period of at least fifteen (15) calendar days
except one late charge period each calendar year may be for a period of less
than fifteen (but not less than thirteen) calendar days. Without limiting the
generality of the foregoing, late charge periods in the case of amounts found to
have been owing to the Port Authority as the result of Port Authority audit
findings shall consist of each late charge period following the date the unpaid
amount should have been paid under this Agreement. Each late charge shall be
payable immediately upon demand made at any time therefor by the Port Authority.
No acceptance by the Port Authority of payment of any unpaid amount or of any
unpaid late charge amount shall be deemed a waiver of the right of the Port
Authority to payment of any late charge or late charges payable under the
provisions of this Section with respect to such unpaid amount. Each late charge
shall be and become additional rent, recoverable by the Port Authority in the
same manner and with like remedies as if it were originally a part of the rental
as set forth in the Section of this Agreement entitled "Basic Rental". Nothing
in this Section is intended to, or shall be deemed to, affect, alter, modify or
diminish in any way (i) any rights of the Port Authority under this Agreement,
including without Limitation the Port Authority's rights set forth in the
Section of this Agreement entitled "Termination" or (ii) any obligations of the
Lessee under this Agreement. If the precise amount of any payment required to be
made by the Lessee under this Agreement cannot be known to the Lessee, such
payment shall not be deemed due to the Port Authority for purposes of this
Section until fifteen (15) days after the date on the Port Authority's notice to
the Lessee of the amount of such payment. In the event that any late charge
imposed pursuant to this Section shall exceed a legal maximum applicable to such
late charge, then, in such event, each such late charge payable under this
Agreement shall be payable instead at such legal maximum.
Section 39. Force Majeure
(a) The Port Authority shall not be liable for any failure, delay or
interruption in performing its obligations hereunder due to causes or conditions
beyond the control of the Port Authority. Further, the Port Authority shall not
be liable unless the failure, delay or interruption shall result from failure on
the part of the Port Authority to use reasonable care to prevent or reasonable
efforts to cure such failure, delay or interruption.
(b) No abatement, diminution or reduction of the rent or other
charges payable by the Lessee, shall be claimed by or allowed to the Lessee for
any inconvenience, interruption, cessation or loss of business or other loss
caused, directly or indirectly, by any present or future laws, rules,
requirements, orders, directions, ordinances or regulations of the United States
of America, or of the state, county or city governments, or of any other
municipal, governmental or lawful authority whatsoever, or by priorities,
rationing or curtailment of labor or materials, or by war or any matter or thing
resulting therefrom, or by any other cause or condition beyond the control of
the Port Authority, nor shall this Agreement be affected by any such causes or
conditions.
Section 40. Premises
(a) The Lessee acknowledges that it has not relied upon any
representation or statement of the Port Authority or its Commissioners,
officers, employees or agents as to the suitability of the premises for the
operations permitted on the premises by this Agreement.
-23-
<PAGE>
WTC-SOL3195
Without limiting any obligation of the Lessee to commence operations hereunder
at the time and in the manner stated elsewhere in this Agreement, the Lessee
agrees that no portion of the premises will be used initially or at any time
during the letting which is in a condition unsafe or improper for the conduct of
the Lessee's operations hereunder so that there is possibility of injury or
damage to life or property. For all purposes of this Agreement the premises
hereunder (notwithstanding any statement elsewhere in this Agreement of any rule
for the measurement of the area thereof) shall be deemed to include all of the
enclosing partitions, and the adjacent exterior building walls and glass to and
including the exterior surface thereof.
(b) The Port Authority may by written authorization allow the Lessee
to enter into possession of the premises prior to the Commencement Date solely
for the purpose of moving personal property of the Lessee into the premises and
of installing fixtures. If the Lessee receives such written authorization, the
Lessee shall use and occupy the premises in accordance with and subject to all
the terms, covenants, conditions and provisions of this Agreement other than
those relating to payment of rent and rights of user and except as may be
expressly provided otherwise by the written authorization.
Section 41. Governmental Compliance
In the event that all or any portion of the premises is required by
the Port Authority to comply with any present or future governmental law, rule,
regulation, requirement, order or direction, the Port Authority shall give the
Lessee notice that all or any such portion of the premises is so required and
the Lessee shall deliver all or any such portion of the premises so required on
the date specified in such notice and, if the Lessee does not so deliver, the
Port Authority may take the same. No such taking or delivery shall be or be
construed to be an eviction of the Lessee or a breach of this Agreement. In the
event that the Lessee has received a notice hereunder it shall deliver all or
any such portion of the premises so required in the same condition as that
required hereunder for the delivery of the premises on the cessation of the
letting. In the event of the taking or delivery of all the premises, this
Agreement and the letting hereunder shall on the day of such taking or delivery
cease and expire as if that day were the date originally stated herein for the
expiration of this Agreement; and, in the event of the taking or delivery of any
portion of the premises, then, from and after such taking or delivery, such
portion of the premises shall cease to be a part of the premises hereunder.
There shall be an abatement of the rental in the event of any such taking or
delivery of a portion of the premises as provided in the Section of this
Agreement entitled "Abatement of Rental".
Section 42. Services and Utilities
(a) Subject to all the terms and provisions of this Agreement, the
Port Authority will furnish without additional charge to the Lessee the
following:
(1) During normal business hours, heat, ventilation and air
cooling subject to the provisions of paragraph (b) of the Section of this
Agreement entitled "Construction by the Lessee";
(2) Cleaning services in the premises as described in Schedule
B attached hereto and hereby made a part hereof.
(b) Unless the premises contain toilet and washroom facilities, the
Port Authority shall, without additional charge, furnish non-exclusive toilet
and washroom facilities for the employees of the Lessee.
(c) (i) Subject to all the terms and provisions of this Agreement,
and to the extent that the Lessee's electricity consumption does not exceed the
capacities of feeders, risers or wiring in the premises or the World Trade
Center, the Port Authority shall furnish to the Lessee electricity in reasonable
quantities solely for illumination, by which is meant the energizing of
fluorescent or incandescent bulbs (to be supplied, paid for and installed by the
Lessee) and for the operation of such office machines and equipment which may be
required for the Lessee's ordinary use of the premises for the purposes herein
specified and the Lessee shall pay for the consumption
-24-
<PAGE>
WTC-SOL3195
and demand for electricity in the premises by or on behalf of the Lessee from
and after the date of this Agreement. The consumption of and demand for
electricity in the premises (being hereinafter referred to as "consumption and
demand") shall, at the election of the Port Authority, be measured by (1) a
survey of the premises which may be conducted periodically throughout the term
of the letting at such times as the Port Authority may elect, by the Port
Authority's Engineering Department or by an independent utility consultant to
be selected by the Port Authority for the purpose of establishing the Lessee's
annual consumption and demand for electricity with such consumption and demand
being based on the wattage of lamps and any other electrical machinery and
equipment and the frequency and duration of the use thereof in the premises, or
(2) measured by meter or meters furnished by the Port Authority for that purpose
and installed on or off the premises, and in the event any meter fails to record
such consumption and demand, the quantity of electricity so supplied during any
period that a meter is out of service, will be considered to be the same as the
quantity supplied during a like period, either immediately before or immediately
after such interruption as selected by the Port Authority. The Lessee's annual
consumption and demand as determined by survey shall be divided by the number of
billing periods per year established by the public utility company supplying
electricity in the vicinity of the premises so as to determine the consumption
and demand per billing period. The Lessee's consumption and demand, whether
measured by survey or meter, shall be paid for by the Lessee at the greater of
the following rates: (1) the rates (including the fuel or other adjustment
factor, if any,) which the Lessee under the service classification then
applicable to the Lessee as of the date of each billing period would be required
to pay for the same quantity of electricity to be used for the same purpose
under the same conditions as if the Lessee had purchased such electricity
directly from the public utility company supplying the same to commercial
buildings in the vicinity; or (2) the Port Authority's cost of obtaining and
supplying the same quantity of electricity. The Lessee shall pay the cost of
such consumption and demand for each such billing period to the Port Authority
on demand therefor and the same shall be deemed additional rental collectible in
the same manner and with like remedies as if it were part of the basic rental
reserved hereunder. The Lessee acknowledges that its consumption and demand for
electricity shall include the use of electricity by the Port Authority and its
cleaning contractor for lighting and, for electrical equipment required to be
used in connection with the cleaning of the premises. The determination of
consumption and demand by survey shall be effective until the next succeeding
survey and shall be binding and conclusive on both the Lessee and the Port
Authority as to all matters, including but not limited to the frequency and
duration of use of the lamps and other electrical machinery and equipment in the
premises. The cost of each such survey shall be borne by the Port Authority,
provided that if the Lessee makes any alterations or improvements to the
premises in accordance with the provisions of the Section of this Agreement
entitled "Construction by the Lessee" or otherwise which may result in greater
consumption or demand, the Port Authority may direct a new survey to establish
the consumption and demand for electricity in the premises and the cost thereof
shall be borne by the Lessee. Any method of measurement used herein shall not
preclude the Port Authority from switching from time to time on ten (10) days'
prior notice to the use of any other method specified herein.
(ii) Notwithstanding that the Port Authority has agreed to supply
electricity to the Lessee, the Port Authority shall be under no obligation to
provide or continue such service if the Port Authority is prevented by law,
agreement or otherwise from metering or measuring consumption and demand as
hereinabove set forth or elects not to so meter or measure the same, and in any
such event the Lessee shall make all arrangements and conversions necessary to
obtain electricity directly from the public utility. Also in such event the
Lessee shall perform the construction necessary for conversion and if any lines
or equipment of the Port Authority are with the consent of the Port Authority
used therefor the Port Authority may make an appropriate charge therefor to the
Lessee based on its costs and expenses for the said lines and equipment.
(d) If the Lessee, in accordance with the Section of this Agreement
entitled "Construction by the Lessee" or otherwise, erects any partitions or
makes any improvements which stop, hinder, obstruct or interfere with the
cooling of the air or the heating of the premises, or if the Lessee shall fail
to close and keep closed the window coverings when the sun is shining on the
windows of the premises, then no such action by the Lessee shall impose any
obligations on the Port Authority to install facilities, fixtures or equipment
for air-cooling or for heating
-25-
<PAGE>
WTC-SOL3195
additional to those existing or presently contemplated or to increase the
capacity or output of initially existing facilities, equipment or fixtures and
the Lessee shall not in any such event be relieved of any of its obligations
hereunder because a comfortable temperature is not maintained. No consent given
by the Port Authority to the erection of partitions or the making of any
improvements shall be or be deemed to be a representation that the work
consented to will not stop, hinder, obstruct or interfere with either the
cooling of the air or heating of the premises or any portion thereof. It is
hereby understood further that the installation by the Lessee of any equipment
which itself requires air cooling or which requires additional quantities of air
cooling at the portion of the premises where such equipment is installed or the
concentration in any portion of the premises of such a number of people so as to
require additional quantities of air cooling, shall not impose any obligation on
the Port Authority to install facilities, fixtures and equipment for air cooling
additional to those initially existing, or to increase the capacity or output of
initially existing facilities, equipment or fixtures and the Lessee shall not in
any such event be relieved of any of its obligations hereunder.
(e) The Lessee shall keep closed all entrance doors and all windows
in the premises except that doors may be opened when required for ingress or
egress. The Lessee shall not otherwise waste or dissipate the air cooling or
heating services. Without otherwise affecting the Port Authority's rights or
remedies in the event of any breach by the Lessee of its obligations under this
Agreement, the Port Authority shall have the right to discontinue or reduce the
said heating or air-cooling service during any period of such waste or
dissipation and any failure of the Port Authority to supply any such service
under such conditions shall not affect any of the Lessee's obligations under
this Agreement.
(f) If any federal, state, municipal or other governmental body,
authority or agency or any public utility assesses, levies, imposes, makes or
increases any charge, fee or rent on the Port Authority for any service, system
or utility now or in the future supplied to or available to the premises or to
any occupants or users thereof or to the structure or building of which the
premises form a part (including but not limited to any sewer rent or charge for
the use of sewer systems), the Lessee shall, at the option of the Port Authority
exercised at any time and from time to time by notice to the Lessee, pay, in
accordance with said notice, such charge, fee or rent or increase thereof (or
the portion thereof allocated by the Port Authority to the premises or the
Lessee's operations hereunder) either directly to the governmental body,
authority or agency or to the public utility or directly to the Port Authority.
(g) The Port Authority shall have the right to discontinue
temporarily the supply of any of the above services when necessary or desirable
in the opinion of the Port Authority in order to make any repairs, alterations,
changes or improvements in the premises or elsewhere in the World Trade Center
including but not limited to all systems for the supply of services.
(h) No failure, delay, interruption or reduction in any service or
services shall be or shall be construed to be an eviction of the Lessee, shall
be grounds for any diminution or abatement of the rentals payable hereunder, or
shall constitute grounds for any claim by the Lessee for damages, consequential
or otherwise, unless due to the negligent acts of the Port Authority, its
employees or agents.
(i) The Port Authority shall be under no obligation to supply any
service or services if and to the extent and during any period that the
supplying of any such service or services or the use of any component necessary
therefor shall be prohibited or rationed by any federal, state or municipal law,
rule, regulation, requirement, order or direction and if the Port Authority
deems it in the public interest to comply therewith, even though such law, rule,
regulation, requirement, order or direction may not be mandatory on the Port
Authority as a public agency.
(j) The Port Authority shall have no obligations or responsibility
with respect to the performance of any services or providing, supplying or
furnishing to the Lessee of any utilities or services whatsoever except as
expressly provided in this Section.
-26-
<PAGE>
WTC-SOL3195
Section 43. Security Deposit or Letter of Credit
(a) Upon the execution of this Agreement by the Lessee and delivery
thereof to the Port Authority, the Lessee shall deposit with the Port Authority
(and shall keep deposited throughout the letting under this Agreement) the sum
(if any) set forth as a security deposit on page 1 of this Agreement either in
cash, or bonds of the United States of America, or of the State of New Jersey,
or of the State of New York, or of The Port Authority of New York and New
Jersey, having a market value of that amount, as security for the full, faithful
and prompt performance of and compliance with, on the part of the Lessee, all of
the terms, provisions, covenants and conditions of this Agreement on its part to
be fulfilled, kept, performed or observed. Bonds qualifying for deposit
hereunder shall be in bearer form but if bonds of that issue were offered only
in registered form, then the Lessee may deposit such bond or bonds in registered
form, provided, however, that the Port Authority shall be under no obligation to
accept such deposit of a bond in registered form unless such bond has been
re-registered in the name of the Port Authority (the expense of such
re-registration to be borne by the Lessee) in a manner satisfactory to the Port
Authority. The Lessee may request the Port Authority to accept a registered bond
in the Lessee's name and if acceptable to the Port Authority the Lessee shall
deposit such bond together with a bond power (and such other instruments or
other documents as the Port Authority may require) in form and substance
satisfactory to the Port Authority. In the event the deposit is returned to the
Lessee any expenses incurred by the Port Authority in re-registering a bond to
the name of the Lessee shall be borne by the Lessee. In addition to any and all
other remedies available to it, the Port Authority shall have the right, at its
option, at any time and from time to time, with or without notice, to use the
deposit or any part thereof in whole or partial satisfaction of any of its
claims or demands against the Lessee. There shall be no obligation on the Port
Authority to exercise such right and neither the existence of such right nor the
holding of the deposit itself shall cure any default or breach of this Agreement
on the part of the Lessee. With respect to any bonds deposited by the Lessee,
the Port Authority shall have the right, in order to satisfy any of its claims
or demands against the Lessee, to sell the same in whole or in part, at any time
and from time to time, with or without prior notice at public or private sale,
all as determined by the Port Authority, together with the right to purchase the
same at such sale free of all claims, equities or rights of redemption of the
Lessee. The Lessee hereby waives all right to participate therein and all right
to prior notice or demand of the amount or amounts of the claims or demands of
the Port Authority against the Lessee. The proceeds of every such sale shall be
applied by the Port Authority first to the costs and expenses of the sale
(including but not limited to advertising or commission expenses) and then to
the amounts due the Port Authority from the Lessee. Any balance remaining shall
be retained in cash toward bringing the deposit to the sum specified above. In
the event that the Port Authority shall at any time or times so use the deposit,
or any part thereof, or if bonds shall have been deposited and the market value
thereof shall have declined below the above-mentioned amount, the Lessee shall,
on demand of the Port Authority and within two (2) days thereafter, deposit with
the Port Authority additional cash or bonds so as to maintain the deposit at all
times to the full amount stated as a security deposit on page 1 of this
Agreement, and such additional deposits shall be subject to all the conditions
of this Section. After the expiration or earlier termination of the letting
under this Agreement as the said letting may have been extended, and upon
condition that the Lessee shall then be in no wise in default under any part of
this Agreement, as this Agreement may have been amended or extended (or both),
and upon written request therefor by the Lessee, the Port Authority will return
the deposit to the Lessee less the amount of any and all unpaid claims and
demands (including estimated damages) of the Port Authority by reason of any
default or breach by the Lessee of this Agreement or any part thereof. The
Lessee agrees that it will not assign or encumber the deposit. The Port
Authority will deposit cash deposited with it pursuant to this paragraph (a) or
any cash drawn under a letter of credit which is to be held as security pursuant
to the provisions of paragraph (b) of this Section in an interest-bearing bank
account in a banking institution selected by it. The Lessee may collect or
receive any interest or income earned on bonds and interest paid on cash
deposited in interest-bearing bank accounts, less any part thereof or amount
which the Port Authority has paid or applied against the Lessee's obligations
under this Agreement or which the Port Authority is or may hereafter be entitled
or authorized by law to retain or to charge, whether as or in lieu of an
administrative expense, or custodial charge, or otherwise.
-27-
<PAGE>
WTC-SOL3195
(b) in lieu of the security deposit required pursuant to paragraph
(a) of this Section the Lessee may deliver to the Port Authority, as security
for all obligations of the Lessee under this Agreement, a clean irrevocable
letter of credit issued by a banking institution satisfactory to the Port
Authority and having its main office within the Port of New York District, in
favor of the Port Authority in the amount (if any) set forth as a security
deposit on page 1 of this Agreement. The form and terms of such letter of
credit, as well as the institution issuing it, shall be subject to the prior and
continuing approval of the Port Authority. Such letter of credit shall provide
that it shall continue throughout the term of the letting under this Agreement
and for a period of not less than six (6) months thereafter; such continuance
may be by provision for automatic renewal or by substitution of a subsequent
satisfactory letter. Upon notice of cancellation of a letter of credit the
Lessee agrees that unless, by a date twenty (20) days prior to the effective
date of cancellation, the letter of credit is replaced by security in the amount
required in accordance with paragraph (a) of this Section or another letter of
credit satisfactory to the Port Authority, the Port Authority may draw down the
full amount thereof and thereafter the Port Authority will hold the same as
security under paragraph (a) of this Section. Failure to provide such letter of
credit at any time during the term of the letting which is valid and available
to the Port Authority, including any failure of any banking institution issuing
any such letter of credit previously accepted by the Port Authority to make one
or more payments as may be provided in such letter of credit shall be deemed to
be a breach of this Agreement on the part of the Lessee. Upon acceptance of such
letter of credit by the Port Authority, and upon request by the Lessee made
thereafter, the Port Authority will return any security deposit theretofore made
under and in accordance with the provisions of paragraph (a) of this Section.
The Lessee shall have the same rights to receive such deposit during the
existence of a valid letter of credit as it would have to receive such deposit
upon expiration of the letting and fulfillment of the obligations of the Lessee
under this Agreement. If the Port Authority shall make any drawing under a
letter of credit held by the Port Authority hereunder, the Lessee on demand of
the Port Authority and within two (2) days thereafter, shall bring the letter of
credit back up to its full amount.
(c) No action by the Port Authority pursuant to the terms of any
letter of credit, or receipt by the Port Authority of funds from any bank
issuing any such letter of credit, shall be or be deemed to be a waiver of any
default by the Lessee under the terms of this Agreement and all remedies under
this Agreement of the Port Authority consequent upon such default shall not be
affected by the existence of or a recourse to any such letter of credit.
Section 44. Additional Right of Termination
(a) Without limiting any other right of termination under this
Agreement, the Port Authority shall have the right to terminate this Agreement
and the letting hereunder without cause, at any time on one hundred eighty (180)
days' notice to the Lessee. In the event of termination pursuant to this
Section, this Agreement and the letting thereunder shall cease and expire as if
the effective date of termination stated in the notice were the date originally
fixed herein for the expiration of the Lease and the term of the letting.
(b) Notwithstanding the foregoing provision, the Port Authority
shall, within ten (10) days after giving the notice referred to in paragraph
(a), tender to the Lessee an agreement, which tender shall constitute an offer
to amend this Agreement, providing for the letting to the Lessee of other space
at the World Trade Center, consisting of a single block of space, substantially
similar in size to the premises but the configuration of such and its location
within the World Trade Center shall be solely within the discretion of the Port
Authority. Such agreement shall contain an exhibit depicting such other space,
the effective date upon which the letting of such space shall commence, a
statement of the number of rentable square feet comprising such space and the
annual basic rental payable for such space which shall be computed at the same
annual per rentable square foot rate as the basic rental set forth in this
Agreement. In addition to the annual basic rental payable for such space the
agreement will provide that the Lessee will continue to pay additional basic
rental as provided in the Schedule A attached hereto based on the number of
rentable square feet in such space. The agreement will also provide that the
Lessee
-28-
<PAGE>
WTC-SOL3195
will surrender, vacate and yield up to the Port Authority the premises on the
date preceding the effective date the letting of such space shall commence and
that the Port Authority will, (1) finish the space or cause the same to be
finished at no cost to the Lessee substantially in the same manner and to the
same extent as the premises, (2) arrange for or, at the Port Authority's option,
reimburse the Lessee for its reasonable expenditures for moving the Lessee's
property from the premises to such other space, (3) reimburse the Lessee for its
reasonable expenditures for installing telephone equipment in such space
substantially equivalent to the Lessee's present installation in the premises
and (4) reimburse all reasonable payments made by the Lessee in connection with
office stationery no longer usable by the Lessee as a result of its move to such
other space. All terms, conditions and provisions of the Lease as so amended
will remain in force and effect as to such space which shall be and become the
premises from the effective date of the letting of such space through the
balance of the term of the letting under the Lease. The Lessee shall within
twenty (20) days after delivery to it of such agreement by the Port Authority,
execute, acknowledge and deliver the same to the Port Authority. Upon the
delivery of a fully executed and acknowledged copy of the agreement by the Port
Authority to the Lessee, the notice theretofore served pursuant to paragraph (a)
hereof shall be deemed null and void and of no further force or effect. In the
event the Lessee does not accept the Port Authority's offer by delivering the
agreement executed and acknowledged by it to the Port Authority within the time
specified herein, then the offer contained therein shall be deemed withdrawn and
the notice terminating the letting served in accordance with the provisions of
paragraph (a) hereof shall be and remain fully effective and the Port Authority
shall have no further obligation to offer other space to the Lessee either at
the World Trade Center or elsewhere.
(c) The provisions of paragraph (b) of this Section shall be
independent of and shall not be deemed a condition precedent or prerequisite to
the exercise of the right of termination by the Port Authority under paragraph
(a) hereof.
(d) The Lessee acknowledges that it has been advised by the Port
Authority that any failure of the Lessee to surrender, vacate and yield up to
the Port Authority the premises on the effective date of termination set forth
in paragraph (a) hereof or on the day preceding the effective date of the
letting of the space to which the Lessee is moved as referred to in paragraph
(b) hereof, will or may cause the Port Authority injury, damage or loss. The
Lessee hereby assumes the risk of such injury, damage or loss and hereby agrees
that it shall be responsible for the same and shall pay the Port Authority for
the same whether such are foreseen or unforeseen, special, direct, consequential
or otherwise and the Lessee hereby expressly agrees to indemnify and hold the
Port Authority harmless against any such injury, damage or loss. The foregoing
shall not constitute or be deemed to constitute the sole and exclusive remedy of
the Port Authority for such failure of the Lessee.
(e) In the event the Lessee shall become entitled to reimbursement
pursuant to the provisions of subdivisions (2), (3) or (4) of paragraph (b)
above, the Lessee shall submit to the Port Authority a statement signed by a
responsible officer of the Lessee certifying the amount due to the Lessee
together with such documentation, records, paid bills and invoices to
substantiate the amount due the Lessee. After examination and approval of such
certified statement and any other documentation as may be reasonably requested
by the Port Authority, the Port Authority will determine the amount due to the
Lessee and will grant the Lessee a credit in such amount against the Lessee's
rental obligations next becoming due.
-29-
<PAGE>
WTC-SOL3195
Section 45. Entire Agreement
This Agreement consists of the following: pages 1 through 30
inclusive, plus Exhibits A, X, Y and R and Schedules A, B, and C (if any).
It constitutes the entire agreement of the parties on the subject
matter hereof and may not be changed, modified, discharged or extended except by
written instrument duly executed by the Port Authority and the Lessee. The
Lessee agrees that no representations or warranties shall be binding upon the
Port Authority unless expressed in writing in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed these presents
as of the day and year first above written.
THE PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
ATTEST:
/s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
- -------------------------- ----------------------------------
WITNESS
Title DIRECTOR OF REAL ESTATE
-------------------------------
(Seal)
BROADVIEW NETWORKS, INC.
ATTEST:
/s/ Terrence J. Anderson By /s/ Vern Kennedy
- -------------------------- ----------------------------------
(Secretary)
Title President
-------------------------------
(Corporate Seal)
"APPROVED"
=====================
FORM TERMS
RTV GW
RMS
-30-
<PAGE>
[GRAPHIC OMITTED]
================================================================================
THE PORT AUTHORITY OF NY & NJ [LOGO]
Tenants Name: Broad View Networks, Inc.
--------------------------------------------------------------------
Building: 1 Floor: 53
------ -----------------------------------------------------------
Lease No: WT--3636
----------------------------------------------------------------------
Exhibit: A Revision:
--- ----------------------------------------------------------
RSF: 2751 Drawn By: D.J.
-------- ----------------------------------------------------------
DATE: 01-14-00 Client Rep. G. Weinstein
---------- ----------------------------------------------------
Initialed:
GW
---------------------------------------------
For the P.A.
/s/ Vern Kennedy
---------------------------------------------
For the Lessee
================================================================================
2131 1955 .7746 1.08998
<PAGE>
WTC-OL-6694
SCHEDULE A
1. For the purposes of this Schedule A, the following provisions
shall apply:
(a) "Taxes" shall mean real estate taxes and assessments which
may be imposed from time to time by the United States of America, the
State of New York or any municipality or other governmental authority,
upon the Port Authority with respect to the buildings, structures,
facilities or land at the World Trade Center or with respect to the
rentals or income therefrom in lieu of or in addition to any tax or
assessment which would otherwise be a real estate tax or assessment and
taxes shall include any payments in lieu of real estate taxes or
assessments which may be agreed upon between the Port Authority and any of
the foregoing governmental authorities, other than payments in lieu of
taxes described in paragraph (b) below.
(b) "Payments in lieu of taxes" shall mean such payments as
the Port Authority has agreed to pay the City of New York under an
agreement dated 1967 as it may have been or may be hereafter supplemented
or amended (hereinafter called "the City Agreement").
(c) The "annual per rentable square foot factor" referred to
in this Schedule was initially fixed at $1.25 in the City Agreement and
provision was made in paragraph 7(3) of the City Agreement for changes
therein from time to time to reflect changes in the tax rate and changes
in assessed valuations.
(d) "Tax base" shall mean the annual per rentable square foot
factor finally established to be the annual per rentable square foot
factor to be used in computing payments in lieu of taxes for the tax year
beginning the July 1 immediately preceding the date of the Lease.
(e) "Tax year" shall mean the twelve-month period established
by The City of New York as a tax year for real estate tax purposes.
(f) "Wage rate" shall mean the cost for an hour's work by a
porter engaged to work a 40 hour work week in a Class A office building in
the City of New York which hourly cost shall be limited solely to the
hourly wage rate for porters as that rate is established from time to time
by collective bargaining agreement between the Realty Advisory Board on
Labor Relations, Incorporated, acting on behalf of various building owners
and Local 32B-32J, Service Employees International Union, AFL-CIO, (which
collective bargaining agreement is hereinafter referred to as "the
Contract"), plus a proper proportion of fringe benefits and other payroll
costs. As used herein:
(1) "Porter" or "porters" shall mean those employees
engaged in the general maintenance and operation of office buildings
Page 1 of Schedule A
<PAGE>
WTC-OL-6694
and classified as "Others" by the Contract.
(2) "Fringe benefits" shall mean the items of cost which
an employer would be obligated to pay or would incur pursuant to the
Contract on the basis of wages paid to a porter engaged to work a 40
hour work week in Class A office building in New York City who is
entitled to receive on an annual basis the maximum entitlement under
the Contract, including, without limitation, vacation allowances,
sick leave, holiday pay, birthdays, jury duty, medical checkup,
lunch time, relief time, other paid time off, bonuses, union
assessments allocable to pension plans and welfare and training
funds, and health, life, accident, or other such types of insurance.
(3) "Other payroll costs" shall mean taxes payable
pursuant to law by an employer upon the basis of wages paid to a
porter engaged to work a 40 hour work week in a Class A office
building in New York City, including, without limitation, F.I.C.A.,
New York State Unemployment Insurance and Federal Unemployment
Insurance.
If at any time during the term of the letting under the Lease
the Contract shall require regular employment of porters on days or during
hours when overtime or other premium pay rates are in effect pursuant to
the Contract the hourly wage rate for porters under the Contract for the
applicable period shall be determined by dividing the weekly wage an
employer would be obligated to pay a porter engaged to work a 40 hour work
week in a Class A office building in New York City under the Contract by
40.
If either the Realty Advisory Board on Labor Relations,
Incorporated or Local 32B-32J, Service Employees International Union,
AFL-CIO shall cease to exist or a collective bargaining agreement shall
cease to be negotiated between the Realty Advisory Board on Labor
Relations, Incorporated and Local 32B-32J, Service Employees International
Union, AFL-CIO, or if the job classification "Others" shall be renamed or
abolished in any subsequent collective bargaining agreement entered into
between the Realty Advisory Board on Labor Relations, Incorporated and
Local 32B-32J, Service Employees International Union, AFL-CIO, then the
wage rate to be used in applying the provisions of this Schedule shall be
the wage rate for those employees engaged in the general maintenance and
operation of Class A office buildings either pursuant to any subsequent
collective bargaining agreement between the Realty Advisory Board on Labor
Relations; Incorporated and Local 32B-32J, Service Employees International
Union, AFL-CIO, or if there is no such agreement, then pursuant to such
agreement as the Port Authority shall select.
(g) "Basic wage rate" shall mean the wage rate in effect on
the January 1 immediately preceding the date of the Lease.
(h) "Rentable square feet in the premises" shall mean the
number of rentable square feet set forth in Section 1 of the Lease.
Page 2 of Schedule A
<PAGE>
WTC-OL-6694
(i) "Lease" shall mean the agreement of lease to which this
schedule is attached.
2. From and after each July 1, following the Commencement Date, the
Lessee shall pay an additional basic rental under the Lease at the annual rate
computed by multiplying the rentable square feet in the premises by the excess
over the tax base of the total of: (i) the annual per rentable square foot
amount of taxes for the tax year beginning on that July 1; and (ii) the annual
per rentable square foot factor used in computing payments in lieu of taxes for
the tax year beginning on that July 1. If taxes become payable on a basis other
than an annual amount per rentable square foot, the Port Authority will allocate
those taxes to the rentable square feet of space in the World Trade Center and
will notify the Lessee of the amount of such allocation.
3. In addition to additional basic rental payable under paragraph 2
above, from and after the commencement date of the letting under the Lease, the
Lessee shall pay additional basic rental under the Lease at an annual rate equal
to $0.01 for each $0.01, or major fraction thereof, that the wage rate in effect
on the commencement date of the letting and each wage rate thereafter
established from time to time during the term of the letting exceeds the basic
wage rate, multiplied by the rentable square feet in the premises.
4. If the imposition or allocation of taxes or the establishment of
an annual per rentable square foot factor to be used in computing payments in
lieu of taxes for any tax year or the establishment of a wage rate to be
effective for any period of time is delayed for any reason whatsoever, the
Lessee shall nevertheless continue to pay the additional basic rental at the
annual rate then in effect subject to retroactive adjustments at such time as
the taxes are imposed or allocated or the said per rentable square foot factor
or wage rate shall have been established
5. After imposition and allocation of taxes for any tax year and the
establishment for each tax year of the annual per rentable square foot factor
used in computing payments in lieu of taxes and after the effective date of each
wage rate in excess of the basic wage rate; the Port Authority will compute the
annual rate or rates of additional basic rental payable by the Lessee under
paragraph 2 or 3 above and will notify the Lessee of the amounts thereof.
Additional basic rental accruing under paragraph 2 or 3 above shall be computed
separately and each amount thereof shall be payable by the Lessee to the Port
Authority in advance in monthly installments, each installment being equal to
1/2 of the annual rate except that if at the time the Port Authority gives
notice to the Lessee under this paragraph, additional basic rental shall have
accrued for a period prior to the notice, the Lessee shall pay such additional
basic rental in full for such period, within ten days after such notice.
Page 3 of Schedule A
<PAGE>
WTC-OL-6694
6. If after an amount of additional basic rental shall have been
fixed under paragraphs 2 or 3 above for any period, taxes are imposed or the
amount of taxes or the annual per rentable square foot factor in regard to
payments in lieu of taxes or the wage rate used for computing such additional
basic rental shall be changed or adjusted, then the additional basic rental
payable for that period shall be recomputed and from and after notification of
the imposition, change or adjustment, the Lessee shall make payments based upon
the recomputed additional basic rental and upon demand the Lessee shall pay any
excess in additional basic rental as recomputed over amounts of additional basic
rental theretofore actually paid. If such change or adjustment results in a
reduction in the amount of additional basic rental for any period prior to
notification, the Port Authority will credit the Lessee with the difference
between the additional basic rental as recomputed for that period and amounts of
additional basic rental actually paid.
/s/ GW
-------------------------
For the Port Authority
/s/ Vern Kennedy
-------------------------
For the Lessee
Page 4 of Schedule A
<PAGE>
WTC-OL-RIS1589
SCHEDULE B
Routine Office Cleaning
Daily (Five days each week except Saturdays, Sundays, and Holidays
1. Empty and damp wipe ash trays, empty waste baskets. Transport
collected waste from normal daily office operations only to trash handling areas
and removal from the building. Collection and removal of waste different from or
in excess of that from normal daily office operations is not included and shall
be deemed additional cleaning services and requested in accordance with the
provisions of this Schedule.
2. Dust horizontal surfaces of office furniture, equipment, ledges,
and sills.
3. Dust sweep vinyl asbestos floor and/or spot vacuum carpeted
surfaces, if any.
4. Clean and sanitize water fountains.
5. Damp wipe fingerprints, smears, smudges, etc., on door, wall and
partition surfaces.
Weekly (Once each week)
6. Dust vertical surfaces of office furniture and equipment.
7. Vacuum entire carpeted floor surfaces.
Quarterly (Once each three months)
8. Wash interior surfaces of exterior window glass.
9. Dust all pictures, frames, charts, graphs, and similar wall
hangings, plus partitions, doors, and door frame surfaces.
/s/ GW
-------------------------
For the Port Authority
Initialed:
/s/ Vern Kennedy
-------------------------
For the Lessee
Schedule B
<PAGE>
WTC-CSL-101068 X
EXHIBIT X
CONSENT TO SUBLEASE
Port Authority Lease No.
(said Lease being dated as of )
THIS AGREEMENT, made as of by and
among THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter called "the
Port Authority"), a body corporate and politic, created by Compact between the
States of New Jersey and New York, with the consent of the Congress of the
United States of America and having an office at One World Trade Center, in the
Borough of Manhattan, City, County and State of New York, and
(hereinafter called "the Lessee"), and
(hereinafter called "the Sublessee"),
whose representative is
WITNESSETH, That:
WHEREAS, the Port Authority and the Lessee have entered into a lease
identified above by Port Authority Lease Number and by date and covering
premises at the World Trade Center in the Borough of Manhattan, City, County and
State of New York (which lease, as the same may have been or may hereafter be
supplemented and amended is hereinafter called "the Lease"); and
WHEREAS, the Lessee has requested the consent of the Port Authority
to a proposed sublease, a copy of which is attached hereto and made a part
hereof and is hereinafter called "the Sublease";
NOW, THEREFORE, for and in consideration of the covenants and mutual
agreements herein contained, the Port Authority, the Lessee and the Sublessee
hereby agree as follows:
1. On the terms and conditions hereinafter set forth the Port
Authority consents to the Sublease.
2. The Sublease shall terminate and expire, without notice to the
Sublessee, on the day preceding the date of expiration or earlier termination of
the Lease, or on such earlier date as the Lessee and Sublessee may agree upon or
on the effective date of any revocation of this Consent by the Port Authority.
The Sublessee shall quit the
Page 1 of Exhibit X
<PAGE>
WTC-CSL-101069
subleased premises and remove its property and property for which it is
responsible therefrom on or before the termination or expiration of the
Sublease.
3. If the Lessee shall at any time be in default under the Lease,
the Sublessee shall on demand of the Port Authority pay directly to the Port
Authority any rental, fee or other amount due to the Lessee. No such payment
shall relieve the Lessee from any obligations under the Lease or under this
Consent or affect the Port Authority's rights or remedies thereunder but all
such payments shall be credited against the obligations of the Lessee or of the
Sublessee, as the Port Authority may determine, for each payment or part
thereof.
4. In any case of difference between the provisions of the Lease or
of this Consent and the provisions of the Sublease, the provisions of the Lease
or of this Consent, as the case may be, shall be controlling, it being the
intention of the Port Authority merely to permit the exercise of the Lessee's
rights (to the extent permitted by the Sublease) by the Sublessee, and not to
enlarge or otherwise change the rights granted by the Lease. All of the terms,
provisions and conditions of the Lease shall be and remain in full force and
effect.
5. The Sublessee, in its operations under or in connection with the
Sublease and its occupancy of the premises, agrees to assume, observe, be bound
by and comply with all the terms, provisions, covenants and conditions of the
Lease. Without limiting the generality of the foregoing, the Sublessee shall use
the premises for the purposes set forth in Section 3 of the Lease and for no
other purpose whatsoever.
6. Without in any wise affecting the obligations of the Lessee under
the Lease and under this Consent, the Sublessee agrees with respect to its acts
and omissions to indemnify the Port Authority and to make repairs and
replacements as if it were the Lessee under the Lease. However, all acts and
omissions of the Sublessee shall be deemed to be acts and omissions of the
Lessee under the Lease and the Lessee shall also be severally responsible
therefor, including but not limited to the obligations of indemnification and
repair.
7. In addition to all other remedies available to the Port Authority
under the Lease or otherwise, this Consent may be revoked by the Port Authority
by notice to the Lessee and the Sublessee in the event of any breach by the
Sublessee of any term or provision of the Lease or of this Consent and no such
revocation shall be deemed to affect the Lease or the continuance thereof. Any
notice given to the Sublessee shall be sufficient if given in accordance with
the Section of the Lease entitled "Notices", for the purpose of which the
Sublessee hereby designates the person named as representative on the first page
hereof as its officer or representative upon whom notices may be served and the
Sublessee designates its office at the address stated on the first page hereof
as the office where such notices may be served.
Page 2 of Exhibit X
<PAGE>
8. The Lessee and Sublessee represent and warrant that the attached
Sublease sets forth the full and entire rental or other consideration payable to
the Lessee by the Sublessee for or in connection with the subletting hereunder
or use or occupancy of the subleased space and they further represent and
warrant that there is no rental or consideration other than as stipulated in the
attached Sublease.
9. The granting of this Consent by the Port Authority shall not be
or be deemed to operate as a waiver of the requirement for consent to any
subsequent subletting (by the Lessee or by the Sublessee) or to any assignment
of the Lease or the Sublease or of any rights under either of them, whether in
whole or in part.
10. References herein to the Sublessee shall mean and include the
Sublessee, its officers, agents, employees and also others on the premises or
the Facility with the consent of the Sublessee.
11. Neither the Commissioners of the Port Authority nor any of them,
nor any officer, agent or employee thereof shall be held personally liable to
the Lessee or to the Sublessee under any term or provision of this Consent or
because of its execution or because of any breach or alleged breach thereof.
IN WITNESS WHEREOF, the Port Authority, the Lessee the Sublessee
have executed these presents.
ATTEST: THE PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
_____________________________ By______________________________
(Title)___________________________________
(Seal)
ATTEST:
__________________________________________
Lessee
_____________________________ By______________________________
(Title)___________________________________
(Corporate Seal)
ATTEST:
__________________________________________
Sublessee
_____________________________ By______________________________
(Title)___________________________________
(Corporate Seal)
Page 3 of Exhibit X
<PAGE>
FORM XLD - Ath., N.Y.ss.1380
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
On the _____________ day of ______________________, 19__, before me
personally came,_____________________________________________ to me known, who,
being by me duly sworn, did depose and say that he resides at___________________
_______________________________________________________________________________,
that he is the _________________________ of The Port Authority of New York and
New Jersey, ([ILLEGIBLE]) the corporations described in and which executed the
foregoing instrument; that he knows the seal of the said corporation; that the
seal affixed to the said instrument is such corporate seal; that it was so
affixed by order of the Board of Commissioners of the said corporation; and that
he signed his name thereto by like order.
____________________________________
[ILLEGIBLE]
STATE OF )
ss.
COUNTY OF )
On the _____________ day of ______________________, 19__, before me
personally came,_____________________________________________ to me known, who,
being by me duly sworn, did depose and say that he resides at _________________
_______________________________________________________________________________,
that he is the _________________________ President of __________________________
_______________________________________________________________________________,
[ILLEGIBLE] of the corporations described in and which executed the foregoing
instrument; that he knows the seal of the said corporation; that the seal
affixed to the said instrument is such corporate seal; that it was so affixed by
order of the Board of Commissioners of the said corporation; and that he signed
his name thereto by like order.
____________________________________
[ILLEGIBLE]
STATE OF )
ss.
COUNTY OF )
On the _____________ day of ______________________, 19__, before me
personally came,_____________________________________________ to me known and
known to me to be the individual described is and who executed the foregoing
instrument, and acknowledged to me that he executed the same.
____________________________________
[ILLEGIBLE]
Page 4 of Exhibit X
<PAGE>
FORM EWT-PL - Assignment, all Facilities
82773
ASSIGNMENT OF LEASE
WITH ASSUMPTION AND CONSENT (Lease No. )
THIS AGREEMENT, made as of by THE PORT
AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter called "the Port Authority"),
a body corporate and politic created by Compact between the States of New York
and New Jersey, with the consent of the Congress of the United States of
America, having an office for the transaction of business at One World Trade
Center, in the Borough of Manhattan, in the City, County and State of New York,
and
(hereinafter called "the Assignor"),
a corporation organized and existing under the Laws of the State of
with an office for the transaction of business at
an individual, residing at
a partnership, consisting of
and
(hereinafter called "the Assignee"),
a corporation organized and existing under the laws of the State of
with an office for the transaction of business at
an individual, residing at
a partnership, consisting of
the representative of which is
WITNESSETH, THAT:
WHEREAS, the Assignor desires to assign to the Assignee that certain
Agreement of Lease dated as of , 19 , made by and between The
Port Authority and the Assignor, and hereinafter, as the same has been
heretofore amended and extended, called "the Lease";
Page 1 of Exhibit Y
<PAGE>
FORM EWT - Assignment
10/13/70
covering premises at
WHEREAS, the Port Authority is willing to consent to such assignment
on certain terms, provisions, covenants and conditions:
NOW, THEREFORE, in consideration of the covenants and mutual
promises herein contained, the Port Authority, the Assignor and the Assignee
hereby agree as follows:
1. The Assignor does hereby assign, transfer and set over to the
Assignee, heirs, executors, administrators and successors to and
their own proper use, benefit and behoof forever, the Lease, to have and to hold
the same unto the Assignee heirs, executors, administrators
and successors from the day of , 19 ,
for and during all the rest, residue, and remainder of the term of the letting
under the Lease, subject nevertheless to all the terms, provisions, covenants
and conditions therein contained; and the Assignor does hereby assign, transfer
and set over unto the Assignee heirs, executors, administrators and
successors, all right, title and interest of the Assignor in and to a certain
deposit (whether of cash or bonds) in the amount of
made by the Assignor with the Port
Authority, as security for the performance of the terms, provisions, covenants
and conditions of the Lease, but subject to the provisions of the Lease and to
any claim or right to the said deposit or any part thereof heretofore or
hereafter made or to be made on the part of the Port Authority.
2. The Port Authority hereby consents to the foregoing assignment.
Notwithstanding anything herein to the contrary, the granting of such consent by
the Port Authority shall not be, or be deemed to operate as, a waiver of the
requirement for consent or consents to each and every subsequent assignment by
the Assignee or by any subsequent assignee, nor shall the Assignor be relieved
of liability under the terms, provisions, covenants and conditions of the Lease
by reason of this consent of the Port Authority or of one or wore other consents
to one or more other assignments thereof.
3. The Assignor agrees that this assignment of the Lease and this
consent of the Port Authority thereto shall not in any way whatsoever affect or
impair the liability of the Assignor to perform all the terms, provisions,
covenants and conditions, including without limitation thereto the obligation to
pay rent, of the Lease on the part of the Lessee or tenant thereunder to be
performed, and that the Assignor shall continue fully liable for the performance
of all the terms, provisions, covenants and conditions, including without
limitation thereto the obligation to pay rent, on the part of the Lessee or
tenant thereunder to be performed.
4. The Assignee does hereby assume the performance of and does
hereby agree to perform, observe and be subject to, all the terms, provisions,
covenants and conditions, including without limitation thereto the obligation to
pay rent, contained in the Lease, which were or are to be performed or observed
by or are applicable to the Lessee thereunder as though the Assignee were the
original signatory to the Lease. Without limiting the foregoing, as an
inducement to the Port Authority to consent to this assignment, the Assignee has
agreed to all the provisions of Section 7(h) and has made the same
representations required of the Lessee under Section 7(h) and the Assignee
hereby covenants and agrees that the Assignee will use the premises solely for
the purpose set forth in
Page 2 of Exhibit Y
<PAGE>
Section 3 of the Lease and that such use shall be subject to the provisions of
Section 7(h) of the Lease. The execution of this instrument by the Port
Authority does not constitute a representation by it that the Assignor has
performed or fulfilled every obligation required by the Lease; and as to such
matters the Assignee agrees to rely solely upon the representations of the
Assignor.
5. The liability of the Assignor hereunder shall in no way be affected by:
(a) The release or discharge of the Assignee in any creditors',
receivership, bankruptcy or other similar proceeding; or
(b) The impairment, limitation or modification of the liability of
the Assignee or its estate in bankruptcy, or of any remedy for the
enforcement of the Assignee's said liability under the Lease, resulting
from the operation off any present or future provision of the Bankruptcy
Code or any other statute or from the decision of any court having
jurisdiction over the Assignee or its estate; or
(c) The rejection or disaffirmance of the Lease in any creditors',
receivership, bankruptcy, or other similar proceeding; or
(d) Any disability or any defense of the Assignee.
6. Neither the Commissioners of the Port Authority nor any of them, nor
any officer, agent or employee thereof, shall be charged personally by the
Assignor or by the Assignee with any liability or held liable to either of them
under any term or provision of this Agreement, or because of its execution or
attempted execution, or because of any breach or attempted or alleged breach
thereof.
Page 3 of Exhibit Y
<PAGE>
IN WITNESS WHEREOF, the Port Authority, the Assignor and the Assignee
have executed these presents as of the date first hereinabove set forth.
ASSIGNOR:
ATTEST: By______________________________
_____________________________ (Title)___________________________________
Secretary (Seal)
ASSIGNEE:
ATTEST: By______________________________
_____________________________ (Title)___________________________________
Secretary (Seal)
THE PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
ATTEST: By______________________________
_____________________________ (Title)___________________________________
(Seal)
Page 4 of Exhibit Y
<PAGE>
FORM EWT - Assignment,
10/13/70
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the day of , 19 , before me came
, to me known, who, being be me duly
sworn, did depose and say that he resides at
that he is the of THE PORT OF NEW YORK
AUTHORITY, the corporation described in, and which executed the foregoing
instrument; that he knows the seal of the said corporation; that the seal
affixed to the said instrument is such corporate seal; that it was so affixed by
order of the Commissioners of the said corporation; and that he signed his name
thereto by like order.
________________________________________
STATE OF )
) ss.
COUNTY OF )
On the day of , 19 , before me
personally came , to me known, who,
being be me duly sworn, did depose and say, that he resides
that he is the
of the corporation described in and which
executed the foregoing instrument; that he knows the seal of the said
corporation; that the seal affixed to the said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of the said
corporation; and that he signed his name thereto by like order.
________________________________________
STATE OF )
) ss.
COUNTY OF )
On the day of , 19 , before me
personally came , to me known, who,
being be me duly sworn, did depose and say, that he resides
that he is the
of the corporation described in and which
executed the foregoing instrument; that he knows the seal of the said
corporation; that the seal affixed to the said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of the said
corporation; and that he signed his name thereto by like order.
________________________________________
Page 5 of Exhibit Y
<PAGE>
RULES AND REGULATIONS
FOR THE WORLD TRADE CENTER
1. Permission granted to use World Trade Center conditional. Permission
granted by the Port Authority directly or indirectly, expressly or by
implication, to any person or persons, to enter upon or use any part of the
World Trade Center (including lessees and other persons occupying or using space
at the World Trade Center, persons doing business with the Port Authority or
with its lessees or permittees, and all other persons whatsoever whether or not
of the type indicated), is conditioned upon compliance with the Port Authority
Rules and Regulations as from time to time may be changed; and entry upon or
into the World Trade Center by any person shall be deemed to constitute an
agreement by such person to comply with said Rules and Regulations.
2. The Manager of the World Trade Center shall have authority to deny the
use of the World Trade Center to any person violating the said Rules and
Regulations or laws, ordinances or regulations of the United States, the State
of New York or the City of New York.
3. Entry restrictions. Persons shall use the common areas and facilities
in the World Trade Center solely for purposes of ingress and egress, and no
person shall cause any obstruction of or loiter in any such common area or
facility. No person shall interfere with the safe, orderly flow of vehicular or
passenger traffic. No person shall be permitted to sleep, lie down or sit on the
floor, ledges, platforms, steps or escalators nor erect any unauthorized
permanent or temporary structure at the World Trade Center without the express
written permission of the Manager. In addition, no person shall spit, urinate or
defecate on any part of the World Trade Center other than in a urinal or toilet
intended for that purpose. No person shall enter upon any court or roof area or
parking area unless specifically so authorized by lease, permit, license or
other agreement with the Port Authority. The Port Authority may exclude from
buildings at the World Trade Center, between the hours of 6 p.m. and 8 a.m. and
at all hours on Saturday, Sundays and legal holidays, all persons who do not
present a pass to the World Trade Center. All such passes shall be in such form
as the Manager of the World Trade Center may prescribe from time to time and no
person shall issue passes unless authorized in writing by the Manager to do so.
Any area barricaded, roped off or otherwise restricted, shall be presumed to be
closed to the public, and members of the public are prohibited from entering
said areas without the express permission of the Manager or his designee.
Furthermore, if the Port Authority deems it advisable for security reasons,
occupants of space at the World Trade Center and persons frequently doing
business there shall provide, and their employees shall wear or carry, badges or
other suitable means of identification which shall be subject to the prior
approval of the Port Authority. Each person responsible for issuance of a pass
or other means of identification to another person shall be liable to the Port
Authority for all acts or omissions of such other persons.
4. No person shall gamble or conduct or engage in any game of chance at
the World Trade Center unless such game of chance is permitted by local, state
and federal law and has been approved by the Manager.
5. No person may for commercial use make drawings or take still
photographs or motion pictures within the World Trade Center without permission
of the Manager.
6. No persons other than authorized persons or employees of the Port
Authority in designated areas, shall bathe, shower, shave, launder or change
clothes or remain undressed in any public restroom, sink, washroom on or within
the World Trade Center.
7. Authorization required for commercial activity, entertainment or
solicitation of funds. No person at the World Trade Center, unless duly
authorized in writing by the Port Authority, shall (a) sell, or offer for sale
any articles of merchandise or carry on any other commercial activity; or (b)
solicit any business or trade, or perform or offer to perform any service,
including without limitation thereto the carrying of baggage for hire, the
shining of shoes or bootblacking; or (c) entertain or offer to entertain any
persons by any method including, without limitation thereto, by singing, dancing
or playing any musical instrument, or (d) canvass, peddle, or solicit funds for
any purpose.
8. Alcoholic Beverage Restrictions. No person shall drink or carry any
open alcoholic beverage on any part of the World Trade Center, provided,
however, that this section shall not apply to those premises or areas wherein
the consumption of alcoholic beverages is permitted pursuant to the provisions
of a lease or other written agreement with the Port Authority.
9. Permission required for posting or distribution of printed matter, etc.
No person shall post, distribute, exhibit, inscribe, paint or affix (nor shall
any person cause, direct or order the posting, distributing, exhibiting,
inscribing, painting or affixing of) signs, advertisements, circulars, notices,
posters,
Page 1 of Exhibit R
<PAGE>
or printed or written or pictorial matter or articles or objects of any kind at,
in, on or to any part of the common areas and facilities of the World Trade
Center without the prior written consent of the Manager of the World Trade
Center. In the event of the violation of the foregoing, the Port Authority may
remove the same without any liability, and may charge the expense and cost
incurred for such removal to the person or persons violating this rule.
10. Property Damage. No person shall deface, mark, break or otherwise
damage any part of the World Trade Center or any property thereat. No person
shall remove, alter or deface any barricade, fence or sign at the World Trade
Center.
11. All persons at the World Trade Center shall exercise the utmost care
to avoid and prevent injury to persons and damage to property. Neither any
inclusion in nor any omission from these Rules and Regulations shall be
construed to relieve any person from exercising the utmost care to avoid and
prevent injury to persons and damage to property.
12. Lost articles to be turned over to Port Authority. Persons finding
lost articles at the World Trade Center shall turn them over to a Port Authority
policeman or to the office of the Manager. Articles which are not claimed by the
owner within 90 days may be turned over to the finders thereof, unless found by
Port Authority employees.
13. Animals and pets, barred, exception. No person except a police officer
or other person authorized by the Manager of the World Trade Center shall enter
in or upon the World Trade Center with any animal or pet of any kind except a
"seeing eye" dog or an animal properly confined for shipment.
14.Requests for Port Authority employees to perform work or services to be
directed to Manager. No person shall request any Port Authority employee to do
any work or perform any service, but shall make all such requests to the Manager
of the World Trade Center who may not comply with the request unless the person
making the request is entitled to receive the service at the time the request is
made under written agreement with the Port Authority, and each person claiming
to be so entitled shall make known such fact to the Manager when the request is
made.
15. Smoking, operation of cutting torches and like devices restricted. No
person shall smoke or carry lighted cigars, cigarettes, pipes, matches or any
naked flame in any place where smoking is specifically prohibited by signs, and
no person shall operate at the World Trade Center an oxyacetylene torch,
electric arc or similar flame or spark-producing device, cook or light a fire or
otherwise create a fire or life/safety hazard on any part of the World Trade
Center. No person shall tamper with or permit to be done anything which may
interefere with the effectiveness or accessibility of any fire prevention,
warning or extinguisher equipment at the World Trade Center nor use the same for
any purpose other than fire fighting or fire prevention. Tags showing date of
last inspection attached to units of fire extinguishing and fire fighting
equipment shall not be removed therefrom.
16. Transportation, storage, etc. of certain materials and substances
prohibited. No person shall store, keep, carry, handle, use, dispense or
transport at, in or upon the World Trade Center, or bring into the World Trade
Center for any purpose:
(a) any flammable, combustible, explosive, corrosive, oxidizing,
poisonous, compressed or otherwise offensive fluid, gas, chemical substance or
material at such time or place or in such manner or condition as to endanger
unreasonably or as to be likely to endanger unreasonably persons or property; or
(b) any firearms or any other weapons, except persons carrying
firearms pursuant to and in compliance with law and all licenses, permits, etc.
in connection therewith including such of the following as may be on official
duty; authorized peace officers, post office, customs or express carrier
employees or members of the armed forces of the United States; or
(c) the following radioactive materials:
(1) source material (as defined in Standards for Protection
Against Radiation, promulgated by the Nuclear Regulatory Commission,
Title 10, Code of Federal Regulations, Part 20) including but not
limited to uranium, thorium, or any combination thereof (but not
including the "unimportant quantities of source material" set forth
in 10 CFR 40.13);
(2) special nuclear material (as defined in Standards for
Protection Against Radiation, promulgated by the Nuclear Regulatory
Commission, Title 10, Code of Federal Regulations, Part 20)
including, but not limited to, plutonium, uranium 233, uranium
enriched in the isotope 233 or in the isotope 235, or any material
artificially enriched by any of the foregoing:
(3) nuclear reactor fuel elements that are partially expended
or irradiated;
(4) new nuclear reactor fuel elements;
(5) radioactive waste material; or
Page 2 of Exhibit R
<PAGE>
[ILLEGIBLE] of Nuclear Regulatory Commission permit and escort.
17. Tampering with controls, equipment, etc. prohibited. No person shall
tamper with or permit to be done anything which may interfere with the
effectiveness or accessibility of any World Trade Center controls, machinery or
equipment including without limitation thereto thermostats, heater valves,
sprinkler valves and devices, or blower motors, and no person shall turn on or
off heating or air cooling controls in the World Trade Center or operate, adjust
or otherwise handle or manipulate any of the aforesaid systems or portions
thereof or operate any other equipment, machinery or other devices installed or
located therein unless expressly authorized in writing by the Port Authority to
do so.
18. Overloading of utility, mechanical, etc., systems prohibited. No
person shall keep, maintain, place or install, use or connect at the World Trade
Center any equipment or engage in any activity or operation at the World Trade
Center which will cause or tend to cause an overloading of the capacity of any
electrical circuit or system or portion of any other utility, mechanical,
electrical, electronic, computerized communication or other systems serving the
World Trade Center, nor do or permit to be done anything which may interfere
with the effectiveness or accessibility of existing and future utility,
mechanical, electrical, electronic, computerized communication or other systems
or portions thereof at the World Trade Center. No person shall in any common
area plug a TV, radio or electrical device into any electrical outlet or connect
any device to any utility at or in the World Trade Center without the express
written approval of the Manager.
19. Obstruction of expansion or contraction joints prohibited. No person
shall place any furniture, machine or equipment over any expansion or
contraction joint unless one end of such furniture, machine or equipment is free
to permit expansion or contraction.
20. Permission required for installations or operation of certain
equipment. No person shall install or use at the World Trade Center, except with
the prior written consent of the Manager of the World Trade Center, any air
conditioning unit or equipment, refrigerator, heating or cooking apparatus or
other power-activated equipment or any signal or call system or other
communication systems or equipment or any device which connects to the power or
other lines for signal or communications or other transmissions in anyway
whatsoever. No person shall install or operate at the World Trade Center any
device which may in the Port Authority's opinion interfere with or impair any
radio, television or telephone transmission or reception or any other
communication service.
21. Permission required to lay floor covering. No person shall lay any
linoleum, floor tile, carpeting or any other affixed floor covering at the World
Trade Center without the prior written consent of the Manager of the World Trade
Center, and if such consent is given, such directions as the Port Authority may
give as to methods and procedures to be used in the laying and installing of any
such floor covering shall be followed.
22. Locks and keys. No person shall place any additional lock of any kind
upon any window or interior or exterior door without the prior written consent
of the Manager and unless a key therefor is delivered to the Port Authority, nor
make any change in any door or window lock or the mechanism thereof, except with
the prior written consent of the Manager. Upon the expiration or sooner
termination of any agreement covering occupancy of space, the occupant shall
surrender to the Port Authority any and all keys to interior and exterior doors
or windows, whether said keys were furnished to or were otherwise procured by
occupants and in the event of the loss of any keys furnished by the Port
Authority the occupant shall pay to the Port Authority the Port Authority's cost
of replacement thereof.
23. Obstruction or light, air, heat, passage, etc. prohibited. No person
shall obstruct or permit the obstruction of light, air or passage in the World
Trade Center, or cover or obstruct any elements of the heating, ventilating or
air cooling systems therein. In addition, no person shall place any window
coverings including without limitation thereto, curtains, blinds, shades,
draperies or screens on any exterior window, without the prior written consent
of the Manager of the World Trade Center, but all occupants of space shall
provide and install, at their expense, such draperies as the Port Authority may
in its discretion require or approve, and all occupants of space shall keep the
draperies closed whenever the sun is shining on the windows.
24. Approval required for certain service contracts. No person shall
purchase or contract for spring water, ice, waxing, rug shampooing, draperies,
towels, cleaning, glass washing, furniture polishing, lamp servicing, cleaning
of electric fixtures, removal of waste paper, rubbish and garbage, or other like
services at the World Trade Center except from contractors, companies or persons
approved by the Port Authority.
25. Measures required to eliminate damaging vibrations. All persons in
their operations and use of space at the World Trade Center shall sake all
reasonable measures to eliminate vibrations tending to damage any part of the
World Trade Center.
Page 3 of Exhibit R
<PAGE>
26. Objectionable noise prohibited. No person shall make, continue, cause
or permit to be made or continued, any objectionable or disturbing noises or
disturb or interfere with occupants of the World Trade Center or neighboring
buildings or premises, whether by the use of any loudspeaker or other amplifying
device, musical instrument, radio, talking machine, television, unmusical noise,
whistling, singing, or in any other way. Nothing in this section shall affect
the right of the Port Authority in its sole discretion to authorize commercial
activity, entertainment or solicitation of funds.
27. Acts or omissions resulting in filing of liens prohibited. No person
shall do or omit to do anything which may be grounds for the filing of any
mechanic's or other lien against the World Trade Center or any part thereof.
Nothing herein shall be deemed to be a consent by the Port Authority to any such
lien or the filing thereof or any implication that such lien would be valid or
enforceable against the Port Authority or its property, but if such lien is
filed, notwithstanding that it may be groundless or unenforceable, the Port
Authority may take such steps as may be required to remove it including payment
of any debts alleged to be owed by any person and such person shall pay the Port
Authority the Port Authority's cost thereof upon demand.
28. Names of persons to be notified In event of emergency to be filed.
Each occupant of space at the World Trade Center shall file with the Port
Authority the name, address, and telephone number of at least two authorized
representatives to be notified in the event of an emergency.
29. Doors, windows to he locked and utility services turned off upon
leaving. All occupants of space at the World Trade Center shall, before leaving
the same at any time, close and lock all entrance doors therein and turn off all
utility services controllable by the occupant.
30. Use of premises for lodging, sleeping or immoral purposes prohibited.
No occupant of space at the World Trade Center shall use the same for lodging or
sleeping purposes or for any immoral purposes.
31. Use of premises during other than normal business hours. When an
occupant of space at the World Trade Center intends to occupy the space during
hours other than normal business hours, the occupant shall make a request, in
writing, for such of those services which the occupant is entitled to receive
during normal business hours as the occupant may desire during hours other than
normal business hours, each such request to be made by 4 p.m. of the last
business day before each day during which the services are desired. Such
services will be provided and paid for by the occupant in accordance with the
schedule of rates established by the Port Authority from time to time and the
occupant agrees that the Port Authority has made no representations or
warranties that the premises will be habitable or usable by the occupant during
other than normal business hours unless the aforesaid services are requested in
advance by the occupant. An occupant of any space at the World Trade Center
shall advise the Manager of the World Trade Center one day in advance of any
occasion when the space he occupies will not be occupied during normal business
hours because of vacations or special holidays.
32. Sidewalks, open areas, etc. to be kept free from snow, ice, dirt and
rubbish. All persons occupying at the World Trade Center any space which has an
entrance or exit opening out on a sidewalk or other open area, shall keep all
sidewalks, open areas, curbs, lobbies, vestibules and steps adjacent to such
space free from snow, ice, dirt and rubbish.
33. Abandonment of property prohibited. No person shall abandon any
property at the World Trade Center. Nor shall any person for himself, herself or
another store either temporarily or permanently any personal property at any
part of the World Trade Center without the approval of the Manager of the World
Trade Center. No person shall store bundles, paper, cloth, cardboard or any
other material in solid, liquid or gas form that could in any way pose a fire or
life/safety hazard or obstruct or hinder passage without the express, written
approval of the Manager.
34. Accumulation and disposal of garbage, debris, waste, etc. restricted.
No person shall allow any garbage, debris, or other waste materials (whether
solid or liquid) to collect or accumulate at the World Trade Center and each
person shall be responsible for the removal from the World Trade Center of all
garbage, debris and other waste materials (whether solid or liquid) arising out
of that person's operations or occupancy or use of space at the World Trade
Center. All persons shall use extreme care when effecting removal of all such
waste and in no event shall any person use for such purpose any facilities of
the Port Authority without the prior consent in writing of the Manager of the
World Trade Center. All persons shall effect such removal only during such hours
and by such means as are prescribed by the Manager in the World Trade Center. No
person shall use the water closets, wash bowls or other plumbing fixtures for
any purposes other than those for which they were designed, and no person shall
throw therein any improper articles or substances (whether liquid or solid)
including without limitation thereto garbage, refuse, sweepings, rubbish, rags,
ashes or litter. No person shall drop or throw anything out of the doors,
windows or down the passageways or into any ventilating or elevator shaftway,
stairwell or other openings. The cost of correcting any condition or repairing
any damage resulting from misuse of fixtures or facilities or from other actions
prohibited herein shall be borne by the persons who, or whose officers,
employees, representatives, agents, contractors or invitees, have caused the
same.
Page 4 of Exhibit R
<PAGE>
35. Trash Removal. All persons at the World Trade Center are responsible
for providing for their own trash removal to a compactor provided by the Manager
for this purpose. No other method of trash disposal is permitted without the
express written consent of the Manager.
36. Movement of inventory, supplies, equipment, furnishings, etc.
restricted. No person shall move inventory, merchandise, supplies or materials,
fixtures, equipment, furnishings, or bulky articles of any kind, including
without limiting the generality thereof, desks, chairs, tables, safes, cabinets,
shelves, business machines, fans or floor coverings, to or from any space at the
World Trade Center except with the prior written consent of the Manager of the
World Trade Center and during such hours on such days as may be prescribed by
the Manager of the World Trade Center. In no event will consent be given unless
the person employed or under contract to perform such moving is competent and
responsible and at least 24 hours' notice of the person's desire to have such
moving performed has been given in writing to the Manager of the World Trade
Center. No person shall use hand trucks in the passenger elevators or shall use
the passenger elevators to transport freight or bulky packages of any type
without the written consent of the Manager of the World Trade Center.
37. Right reserved to inspect freight, articles, packages, etc. brought in
or out. The Port Authority reserves the right to inspect all freight and other
articles including hand-carried packages brought into or out of the World Trade
Center and to exclude therefrom all articles which violate any of these Rules
and Regulations, and to require the occupants of space and others regularly
doing business at the World Trade Center to issue package passes (in such form
as may be approved by the Port Authority) for packages being carried to or from,
or from one location to another within the World Trade Center.
38. Elevator service.
(a) Non-exclusive automatic passenger elevator service will be
operated during normal business hours.
(b) Minimal passenger elevator service will be available at times
other than normal business hours for persons who may have business in the World
Trade Center during such times and whose presence in the World Trade Center is
duly authorized in the manner the Port Authority prescribes.
(c) Freight elevators and truck docks will be available for routine
movements during normal business hours. Notice must be given within normal
business hours to the Manager of the World Trade Center at least 24 hours in
advance in the event freight elevator service is desired which cannot be
accommodated as a routine movement or during normal business hours. The person
requesting the same will pay the cost for this extra freight elevator service in
accordance with the schedule of rates established by the Port Authority from
time to time. Persons for whose account property is being delivered or picked up
at the truck docks shall arrange for such delivery or pick-up to be made only at
such place or places as may be designated by the Port Authority for such
purposes and shall arrange for the handling and movement of the property in such
a way that it will be removed from the truck docks immediately upon its arrival
there, and such persons shall not allow any property to be placed or transported
at any time in any common area or facility at the World Trade Center unless the
area or facility is one which the Manager has designated as a proper area or
facility for that type of property or transportation or to remain therein for a
longer time than is necessary to transport it to its destination. The Port
Authority will not be responsible for the custody, security, handling or
movement of property while at the truck docks or on the freight elevators or
while en route to or from either of the same and the person for whose account
property is being delivered or picked up at the truck docks or is being
transported on, to or from freight elevators shall make all arrangements for
loading, unloading, handling and movement of the property and its security,
including keeping the property attended at all times. Property may be moved
within the World Trade Center solely by suitable vehicles of the indoor
industrial wheeler type with rubber tire and side guards and by way of such
routes as the Manager may designate from time to time.
39. Operation of elevators by persons other than Port Authority employees
prohibited. No person other than employees of the Port Authority, or their
designees, shall operate any freight elevator or passenger elevator (except for
the operation in automatic passenger elevators of such controls as are designed
for use by passengers) at the World Trade Center.
40. Use of elevator, escalators and loading docks restricted.
(a) Passenger elevators and escalators may not be used to carry
freight.
(b) The use of any escalator, elevator, private right-of-way or
truck loading dock at the World Trade Center will be subject so the direct
control of the Manger.
(c) No unauthorized person shall cause an elevator or escalator to
stop by means of any emergency stopping device unless continued operation would
appear to result in probable injury to a person or persons. Any such stopping
should be reported immediately to the Manager.
41. Vehicular traffic restricted. No person shall (nor shall any occupant
of space at the World Trade
Page 5 of Exhibit R
<PAGE>
Center permit its officers, employees, agents, representatives of other persons
who are connected with or are doing business with such occupant or who are at
the World Trade Center for the purpose of visiting such space, to) operate any
automotive or other vehicle (including skateboard, rollerskates or bicycle,
scooter or any self-propelled vehicle or device) in any area of the World Trade
Center not designated for such use, or operate the same in any vehicular
roadway, parking area, public area or street, in or adjacent to the World Trade
Center, or park or allow any vehicle to stand in any such roadway, area or
street except in accordance with such signs, speed limits, lights, signals,
pavement markings, directions, laws, ordinances, rules and regulations (of the
Port Authority or of such other agency, municipality or other government
authority having jurisdiction) as may be in force from time to time. No person
shall park vehicles except in those portions of the parking area designated for
that purpose by the Port Authority and except upon payment of such parking fees
and charges as may from time to time be prescribed and if specific space is
assigned to that person then only in the space so assigned. In the event that a
person shall park in any space other than the specific space assigned to that
person then that person shall pay to the Port Authority upon demand $25 per day
per car parked in any area other than those designated.
42. Disabled, abandoned or illegally parked vehicles subject to removal.
The Manager may remove from any area at the World Trade Center any vehicle which
is disabled, abandoned, parked in violation of these Rules and Regulations, or
which presents an operational problem to any area at the World Trade Center, at
the operators or owners expense and without liability for damage which may
result in the course of such moving.
43. Operation of motor vehicles. No person shall operate a vehicle at the
World Trade Center in a careless or negligent manner or in disregard of the
rights and safety of others, or without due caution or circumspection, or at any
speed in excess of speed limits posted in the area where the vehicle is being
operated, or in any event at a speed in excess of fifteen (15) miles per hour,
or at any speed or in a manner which, endangers unreasonably or is likely to
endanger unreasonably persons or property, or while the driver thereof is under
the influence of intoxicating liquor, or any narcotic or habit-forming drug or
if such vehicle is so constructed, equipped or loaded as to endanger
unreasonably or be likely to endanger unreasonably persons or property, or
unless (a) the driver thereof is duly authorized to operate such vehicle on
State or municipal highways; and (b) such vehicle is registered in accordance
with the provisions of law.
44. Duty of driver of vehicle involved in accidents. The driver of any
vehicle involved in an accident at the World Trade Center which results in
injury or death to any person or damage to any property shall immediately stop
such vehicle at the scene of the accident, render such assistance as may be
needed, and leave his name, address, and operator's license and registration
number to the person injured or to any officer or witnesses of the accident. The
operator of such vehicle shall make a report of such accident in accordance with
the law of the State of New York.
45. Definitions. As used in these Rules and Regulations:
(a) "Holidays" or "legal holidays" shall mean and include the
following days in each year; the first day of January, known as New Year's day,
the third Monday in January, known as Martin Luther King, Jr. day; the twelfth
day of February, known as Lincoln's birthday; the third Monday in February,
known as Washington's birthday; the last Monday in May, known as Memorial day;
the fourth day of July, known as Independence day; the first Monday in
September, known as Labor day; the second Monday in October, known as Columbus
day; the eleventh day of November, known as Veteran's day; the fourth Thursday
in November, known as Thanksgiving day; and the twenty-fifth day of December,
known as Christmas day; and if any of such days is Sunday, the next day
thereafter, and each general election day in the State of New York; and such
other or different days or dates as are declared "Holidays" or "legal holidays"
under the laws of the State of New York or as may hereafter be so declared.
(b) "Normal business hours" shall mean 8 a.m. to 6 p.m. Mondays to
Fridays inclusive, legal holidays excepted.
(c) "Person" or "persons" shall mean and include natural persons,
corporations and other legal entities, whether foreign or domestic, sovereign
states and governments, governmental and quasi-governmental authorities,
bureaus, agencies, boards and other units of governments, and partnerships,
firms, companies, joint ventures and unincorporated associations. All persons
shall be responsible for the acts or omissions of their officers, members,
employees, agents, representatives, contractors, customers, guests, invitees,
and those doing business with them.
(d) "Manager" or "Manager of the World Trade Center" shall mean the
person or persons from time to time designated by the Port Authority to exercise
the powers and functions vested in the said Manager by these Rules and
Regulations and shall include a temporary or acting Manager of the World Trade
Center and his duly designated representative or representatives.
(e) "Common areas and facilities" shall mean and include, without
limiting the generality thereof, entrances, exits, lobbies, toilets, passages,
halls, corridors, courts, plazas, vestibules, stairways and elevators,
escalators and other areas and facilities for the movement of persons and/or
property.
Page 6 of Exhibit R
<PAGE>
(New York "All-Purpose" Acknowledgment - Port Authority)
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 21st day of March, 2000, before me, the undersigned, a Notary
Public in and for said State, personally appeared Cherrie Nanninga, known to me
or proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he/she
signed the executed the same in his/her capacity, and that by his/her signature
on the instrument, the individual, or the person on behalf of which the
individual acted, executed the instrument.
/s/ Joseph A Cantelmo
--------------------------------------
(notarial seal and stamp)
JOSEPH A CANTELMO, JR
Notary Public of New Jersey
ID. No. 2202727
My Commission Expires June 20, 2002
(New York "All-Purpose Acknowledgment - Corporation)
STATE OF NEW YORK )
)ss.:
COUNTY OF QUEENS )
On the 15 day of February, 2000, before me, the undersigned, a
Notary Public in and for said State, personally appeared TERRENCE ANDERSON,
known to me or proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument and acknowledged to
me that he/she signed the executed the same in his/her capacity, and that by
his/her signature on the instrument, the individual, or the person on behalf of
which the individual acted, executed the instrument.
/s/ Isabelle H. Hakiki
--------------------------------------
(notarial seal and stamp)
ISABELLE H. HAKIKI
Notary Public, State of New York
No 01HA5041510
Qualified in Queens County
Commission Expires April 03, 2001
<PAGE>
Exhibit 10.38
STANDARD FORM OF SUBLEASE AGREEMENT
Table of Contents
Section Page
- ------- ----
1. Sublease ................................................................ 1
2. Term .................................................................... 1
3. Rent .................................................................... 2
4. Subordination to Major Lease ............................................ 2
5. Damage or Injury ........................................................ 3
6. Repairs by Overlandlord ................................................. 3
7. Alterations ............................................................. 4
8. Access .................................................................. 4
9. Broker .................................................................. 4
10. Sublessee's Covenants .................................................. 4
11. Default by Sublessor Under Major Lease ................................. 5
12. Consent ................................................................ 5
<PAGE>
STANDARD FORM OF SUBLEASE AGREEMENT
SUBLEASE made between C-Cubo Microsystems, Inc. a Delaware
corporation with office at 1708 McCarthy Blvd., Milpitas, CA 95035
("SUBLESSOR"), and Broadview Networks, Inc. a New York corporation with offices
at 45-18 Court Square, Long Island City, NY 11101 hereinafter ("SUBLESSEE")
PRELIMINARY STATEMENT
SUBLESSOR has leased, as Tenant, from Robert Martin Company, as
Landlord, ("Overlandlord") premises in the building located at 1 Water Street
White Plains, New York (the "Demised Premises") pursuant to a certain lease
dated March 12, 1996 (the "Major Lease"); and
SUBLESSOR desires to sublet to SUBLESSEE and SUBLESSEE desires to
hire from SUBLESSOR all of the Demised Premises: and
It is agreed as follows:
1. SUBLEASE. SUBLESSOR sublets to SUBLESSEE all of the Demised Premises
consisting of 1980 square feet as shown on the floor plan annexed hereto as
Exhibit A (the "Sublet Premises"), for general office uses and for no other
purpose. All parking rights as per master lease will be transferred to
subtenant.
2. TERM. The term of this sublease ("Sublease Term") shall commence on the
date on which Sublessor delivers the sublet space in broom clean condition and
expire on March 31, 2001, or such earlier date upon which the Sublease Term
expires or terminates pursuant to the provisions of this sublease or pursuant to
law.
3. RENT. The rent for the Sublease Term shall be $ 48,648.00 per annum and
shall be payable monthly, in advance, on the first (1st) day of each calendar
month, in equal monthly
<PAGE>
installments of $4,054.00, except that the installment for the first month of
the Sublease Term shall be payable upon the execution hereof. Rent hereunder
includes Landlord's charges for electric, parking and Sublessor's proportionate
share of operating expenses and tax escalations, and subtenant shall not suffer
or incur any additional obligation or liability in connection therewith. All
payments called for under this sublease shall be made without setoff or
deduction, at SUBLESSOR'S office or at such other address as SUBLESSOR may
designate.
4. SUBORDINATION TO MAJOR LEASE. This sublease is subordinate to, and
SUBLESSEE accepts this sublease subordinate to, the Major Lease and the matters
to which the Major Lease is subordinate. This sublease is also subordinate to,
and SUBLESSEE accepts this sublease subordinate to, any amendments to the Major
Lease hereafter made between Overlandlord and SUBLESSOR. The Major Lease is
represented by SUBLESSOR to be the full agreement by the Overlandlord and
SUBLESSOR. Copies of the documents comprising the Major Lease have been
delivered to and reviewed by SUBLESSEE. SUBLESSEE acknowledges that SUBLESSOR
cannot convey to SUBLESSEE any greater estate than SUBLESSOR has been granted
pursuant to the Major Lease.
The provisions of the Major Lease are incorporated herein by reference
with the same force and effect as if they were fully set forth herein, except as
otherwise specifically provided herein. Notwithstanding the foregoing, all
provisions in the Master Lease concerning payment of electrical charges, parking
and proportionate share of operating expenses and tax escalations, together with
sections 38(a) through 38(c), 48 and 58 of the Master Lease.
SUBLESSEE covenants that SUBLESSEE will not do anything in or with respect
to the Sublet Premises or omit to do anything which SUBLESSEE is obligated to do
under the terms of the sublease which
-2-
<PAGE>
would constitute a default under the Major Lease or might cause the Major Lease
or the rights of SUBLESSOR as tenant thereunder to be cancelled, terminated or
forfeited or might make SUBLESSOR liable for any damages, claims or penalties.
5. DAMAGE OR INJURY. Overlandlord and SUBLESSOR shall not be liable for
any damage to property or injury to persons, sustained by SUBLESSEE or others,
caused by conditions or activities on the Sublet Premises. Notwithstanding
anything to the contrary contained herein, Sublessee's obligations hereunder
shall not include making (a) any repair or improvement necessitated by the
negligence or willful misconduct of SUBLESSSOR, its agents, employees or
servants; (b) any repair or improvement caused by SUBLESSOR'S failure to perform
its obligations hereunder or under any other agreement between SUBLESSOR and
SUBLESSEE; or (c) any structural or simple repairs, improvements or alterations
to the Premises or the Building. SUBLESSEE shall indemnify the Overlandlord and
SUBLESSOR against all claims arising therefrom and shall carry liability
insurance as required by the Major Lease.
6. REPAIRS BY OVERLANDLORD. SUBLESSEE shall look only to SUBLESSOR for any
services to be furnished to SUBLESSEE in accordance with this sublease.
SUBLESSOR shall use its reasonable efforts to obtain for SUBLESSEE any services
which are the obligation of Overlandlord. In all provisions of the Major Lease
requiring Landlord to take any action or perform any work or furnish any
services, SUBLESSOR shall promptly request Landlord to perform such services or
and shall take all reasonable steps to cause Landlord to perform such services
in the event of Landlord's failure to so perform. Notwithstanding anything to
the contrary contained herein, in no event shall SUBLESSEE be in default under
this Sublease if it is prevented from performing its obligations hereunder as a
result of a default by Landlord. In the event that Landlord's failure to perform
shall continue for a period of sixty (60) days, SUBLESSEE may, at any time
thereafter, provided that SUBLESSEE'S ability to conduct business at the
Premises continues to be materially interfaced with, in addition to all other
rights and remedies, terminate this Sublease upon notice to SUBLESSOR.
7. ALTERATIONS. SUBLESSEE shall not make any alterations, additions or
improvements upon or to the Sublet Premises without the prior written consent of
SUBLESSOR and Overlandlord. Any permitted alterations, additions and
improvements shall be made at the sole cost of SUBLESSEE and shall become the
property of SUBLESSOR and shall remain on and be surrendered with the Sublet
Premises at the termination of this sublease. SUBLESSEE shall deliver up the
same, at the expiration or sooner termination of the term of this sublease, in
as good condition as they are now in, ordinary wear, fire and other unavoidable
casualties excepted.
8. ACCESS. At all reasonable hours, the Sublet Premises shall be open to
Overlandlord and SUBLESSOR, their agents and representatives for inspecting or
for repairs, additions or alterations by either party. Overlandlord and
SUBLESSOR shall use reasonable effort to ensure that any of the above functions
will
-3-
<PAGE>
not interfere with the conduct of the SUBLESSEE's business operation.
9. BROKER. SUBLESSEE warrants and represents that it has dealt with no
broker or any other person who would legally claim to be entitled to receive a
brokerage commission or finder's or consultant's fee with respect to this
transaction other than Equis of New York, Inc. and Cushman & Wakefield of
Connecticut, Inc. ("Brokers"). SUBLESSEE shall indemnify SUBLESSOR and
Overlandlord against the claim of any person, firm or corporation arising out of
any inaccuracy or alleged inaccuracy of the above representation. Sublessor
shall pay the commissions to brokers pursuant to a separate agreement.
10. SUBLESSEE'S COVENANTS. Sublessee covenants with SUBLESSOR to hire said
premises and to pay the rent therefore as aforesaid, that it will commit no
waste, nor suffer the same to be committed thereon, nor injure nor misuse the
same; and also that it shall not make alterations therein, nor use the same for
any purpose but that hereinbefore authorized. SUBLESSEE has inspected the Sublet
Premises and except as otherwise expressly provided herein, accepts same in
their present condition, without any warranties or representations (express or
implied) being relied upon and is relying upon its own inspection. SUBLESSEE
further covenants that this sublease shall not be assigned, encumbered or
otherwise transferred, the Sublet Premises shall not be further sublet by
SUBLESSEE, in whole or in part, and SUBLESSEE shall neither suffer nor permit
any of the Sublet Premises to be used or occupied by others without the prior
consent of Overlandlord in each instance. SUBLESSOR represents, warrants and
certifies to SUBLESSEE that:
(i) to the best of its knowledge, as of the Commencement Date, all
structural parts of the Premises including, without limitation, the
exterior walls, plumbing, electrical and other mechanical systems are in
good, workable and sanitary order, condition, and repair at the time of
delivery of the Premises to Subtenant. SUBLESSOR represents and warrants
that it has disclosed to Subtenant any conditions or restrictions within
SUBLESSOR'S actual knowledge that would materially adversely affect
Subtenant's use of the Premises as contemplated by this Lease.
(ii) that Major Lease is in full force and effect as of the date hereof;
(iii) to the best SUBLESSOR'S knowledge, Major Landlord and SUBLESSOR are
not now in default under any provisions of the Major Lease;
(iv) as of the date hereof, no notice has been received or given of a
default under the terms of the Major Lease;
(v) the Major Lease has not been amended or modified except as expressly
set forth in this Sublease; and
(vii) SUBLESSOR shall continue during the term of the Major Lease and
Sublease to be liable and responsible for the due performance of all of
the covenants, agreements, terms, provisions and conditions set forth in
the Major Lease on the SUBLESSOR'S part to be performed including
but not limited to its obligation to pay all charges or sums which shall
become due to Landlord pursuant to the Major Lease.
11. DEFAULT BY SUBLESSOR UNDER MAJOR LEASE. SUBLESSOR covenants and agrees
that it will perform and observe all of the terms, covenants and conditions
contained in the Major lease to be performed and observed by the Sublease
thereunder, and hereby does indemnify and hold SUBLESSEE harmless from and
against any and all actions, claims, demands, damages, liabilities and expenses
of every kind or nature (including, without limitation, reasonable attorneys'
fees) based upon or incurred on account of any violation of any such terms,
covenants or conditions. SUBLESSOR covenants and agrees that it shall not do or
suffer, or permit anything to be done or suffered, which causes a default under
the Major Lease by the SUBLESSEE thereunder or which would cause the Major Lease
to be canceled, terminated or modified in an manner adverse to SUBLESSEE without
SUBLESSEE'S prior written consent, and SUBLESSOR shall pay all rent and other
charges as required under Major Lease. SUBLESSOR shall deliver to SUBLESSEE
photocopies of all default notices received by SUBLESSOR under the Major Lease
within three (3) days after receipt thereof by SUBLESSOR. If SUBLESSOR defaults
under the Major Lease, if and to the extent that Landlord permits SUBLESSEE to
cure any default of SUBLESSOR, then SUBLESSOR agrees that to the extent that
SUBLESSEE may setoff the amount actually paid from the future fixed rent and
additional rent due under this Sublease, which setoff shall continue until
SUBLESSEE is reimbursed in full. In the event of a default by SUBLESSOR under
the Major Lease which results in termination of such lease, this sublease shall,
at the option of the Overlandlord, remain in full force and effect and
-4-
<PAGE>
the SUBLESSEE shall attorn to and recognize Overlandlord as Landlord hereunder
and shall promptly upon such Overlandlord's request, execute and deliver all
instruments necessary or appropriate to confirm such attornment and recognition.
The SUBLESSEE hereunder hereby waives all rights under any present or future law
or otherwise to elect, by reason of the termination of the Major Lease, to
terminate this sublease or surrender possession of the premises demised hereby.
If for any reason permitted under the terms of this Sublease or by law (other
than SUBLESSOR'S default under the Major Lease or a voluntary surrender of the
Major Lease by SUBLESSOR) the term of the Major Lease is terminated prior to the
Expiration Date, this Sublease shall thereupon automatically be terminated, as
if the Expiration Date were one day prior to the date of the termination under
the Major Lease, and SUBLESSOR shall not be liable to SUBLESSEE by reason
thereof. Upon any such termination of this Sublease, SUBLESSOR shall return to
SUBLESSEE that portion of the Rent paid in advance by SUBLESSEE hereunder, if
any, prorated as of the date of such termination and the Security Deposit.
12. CONSENT. No rights are conferred upon SUBLESSEE until (i) this
sublease has been signed by SUBLESSOR and an executed copy has been delivered to
SUBLESSEE and (ii) the consent of Overlandlord has been obtained. SUBLESSOR
shall promptly after the execution of this sublease by both SUBLESSOR and
SUBLESSEE submit this sublease to Overlandlord for its consent. If the
Overlandlord refuses to grant consent or if the Major Lease is cancelled for any
reason whatsoever prior to the first day of the Sublease Term, all sums received
hereunder by SUBLESSOR shall be returned to SUBLESSEE without interest and
without any further liability on the part of the SUBLESSOR and this sublease
shall be deemed void and of no effect.
13. Notices. Any notice by either party to the other required, permitted
or provided for herein shall be valid only if in writing and shall be deemed to
be duly given only if (a) delivered personally, or (b) sent by means of Federal
Express, UPS Next Day Air or another reputable express mail delivery service
guaranteeing next day delivery, or (c) sent by United States Certified or
registered mail, return receipt requested, addressed i) if to SUBLESSOR, at the
following addresses: and (ii) if to the SUBLESSEE at:
-5-
<PAGE>
13. Notices cont.
i) C-Cube Microsystems, Inc. (ii) Broadview Networks, Inc.
1702 McCarthy Blvd. 45-18 Court Square
Milpitas, CA 95035 Long Island City, NY 11101
Attn: Lease Administrator Atten: Mr. Scott Matukas
14. SECURITY DEPOSIT. Concurrently with SUBLESSEE's execution and delivery
of this Sublease, SUBLESSEE shall deposit with SUBLESSOR the sum of $4,054.00
(the "Deposit"). The Deposit shall be held by SUBLESSOR as security for the
faithful performance and observance by SUBLESSEE of the terms, provisions and
conditions of this Sublease. It is agreed that in the event SUBLESSEE defaults
with respect to any of the terms, provisions and conditions of this Sublease,
including, but not limited to, the payment of rent, SUBLESSOR may use, apply or
retain the whole or any part of the Deposit to the extent required for the
payment of any rent or any other sum as to which SUBLESSEE is in default or for
any sum which SUBLESSOR may expend or may be required to expend by reason of
SUBLESSEE's default with respect to any of the terms, covenants and conditions
of this Sublease. In the event that SUBLESSEE shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this Sublease,
the Deposit shall be returned to SUBLESSEE after the date fixed as the end of
this Sublease, and after delivery of entire possession of the demised premises
to SUBLESSOR, except for any amounts that SUBLESSOR had deducted therefrom that
are needed by SUBLESSOR to cure defaults of SUBLESSEE under this Sublease or to
compensate SUBLESSOR for damages or which SUBLESSEE is liable pursuant to this
Sublease. If SUBLESSOR uses or applies all or a portion of the Deposit,
SUBLESSEE shall within ten (10) days deposit cash with SUBLESSOR in an amount
sufficient to restore the Deposit to the full amount and SUBLESSEE'S failure to
do so shall be a breach of this Sublease. If SUBLESSEE performs all of
SUBLESSEE's obligations hereunder, the Deposit, or the balance not applied by
SUBLESSOR, shall be returned, without interest, to SUBLESSEE following the
expiration of the Term, and after SUBLESSEE has vacated the Premises.
15. ATTORNEYS' FEES. If SUBLESSOR, SUBLESSEE, or Overlandlord brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party who recovers substantially all of the damages, equitable relief
or other remedy sought in any such action on trial and appeal shall be entitled
to his or her reasonable attorney's fees to be paid by the losing party as fixed
by the Court.
16. ASSIGNMENT. Neither party shall assign its rights or delegate its
duties hereunder without the prior written consent of the other, provided
however, that in the event of merger or acquisition where all at substantially
all of SUBLESSOR's assets are acquired by Harmonic Inc., this Agreement shall be
assigned without the consent of SUBLESSEE. Any attempted assignment or
delegation not permitted hereunder shall be void and of no effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals this_______ day of ___________ 2000.
C-Cube Microsystems. Inc.
As SUBLESSOR.
By: /s/ [ILLEGIBLE]
---------------------
Title President
Broadview Networks, Inc.
As SUBLESSEE
By: /s/ Scott M. Mutukas
---------------------
Title: VP Admin
CONSENT BY Mack-Cali Realty Group
HEREBY consents to the above sublease.
Mack-Cali Realty Group
As OVERLANDLORD
By:______________________
Title: __________________
-6-
<PAGE>
Exhibit A
[GRAPHIC OMITTED]
<PAGE>
CONSENT TO SUBLET
(?) ("Owner") hereby consents to the sublease dated _________________________
("Sublease") by C-Cube Micro Systems, Inc., a Delaware corporation having an
office at 1708 McCarthy Blvd., Milpitas, CA 95035 ("Tenant") to, Broadview
Networks, Inc. a New York corporation having a office at 45-18 Court Square,
Long Island City, NY 11101 ("Subtenant") for a term commencing on To Be
Determined (target date is April 15, 2000) and ending on March 31, 2001 of a
portion of the 2nd floor ("Sublet Space") in the building known as 1 Water
Street, White Plains, NY (the "Building"), which Sublet Space is the premises
(the "Premises") now leased and demised by Owner to Tenant by that certain lease
now between Owner and Tenant dated March 12, 1996 (which lease, as the same may
have been and may hereafter be amended, is hereinafter called the "Lease") such
consent being subject to and upon the following terms and conditions, to each of
which Tenant and Subtenant consents and agrees to be bound:
1. The Sublease is subordinate to, and Subtenant accepts the Sublease,
subordinate to, the Lease and the matters to which the Lease is subordinate. The
Sublease is also subordinate to, and Subtenant accepts the Sublease subordinate
to, any amendments to the Lease hereafter made between Owner and Tenant. Copies
of the documents comprising the Lease have been delivered to and reviewed by
Subtenant. Subtenant acknowledges that Tenant cannot convey to Subtenant any
greater estate than Tenant has been granted pursuant to the Lease.
The provisions of the Lease are incorporated in the Sublease by reference
with the same force and effect as if they were fully set forth therein, except
as otherwise specifically provided herein.
Subtenant covenants that Subtenant will not do anything in or with respect
to the Premises or omit to do anything which Subtenant is obligated to do under
the terms of the Sublease which would constitute a default under the Lease or
might cause the Lease or the rights of Tenant thereunder to be canceled,
terminated or forfeited or might make Tenant liable for any damages, claims or
penalties.
2. Owner and Tenant shall not be liable for any damage to property or
injury to persons, sustained by Subtenant or others, caused by conditions or
activities on the Sublet Space. Subtenant shall indemnify the Owner and Tenant
against all claims arising therefrom and shall carry liability insurance as
required by the Lease.
3. Subtenant shall look only to Tenant for any Services to be furnished to
Subtenant in accordance with the Sublease.
4. Subtenant shall nor make any alterations, additions or improvements
upon or to the Sublet Space without the prior written consent of Tenant and
Owner. Any permitted alterations, additions and improvements shall be made at
the sole cost of Subtenant and shall become the property of Tenant and shall
remain on and be surrendered with the Sublet Space at the termination of the
Sublease. Subtenant shall deliver up the same, at the expiration or sooner
termination of the term of the Sublease, in as good condition as they are now
in, ordinary wear, fire and other unavoidable casualties excepted.
1
<PAGE>
5. At all reasonable hours, the Sublet Space shall be open to Owner and
Tenant, their agents and representatives for inspecting or for repairs,
additions or alterations by either party.
6. Subtenant warrants and represents that it has dealt with no broker or
any other person who would legally claim to be entitled to receive a brokerage
commission or finder's or consultant's fee with respect to this transaction.
Subtenant shall indemnify Tenant and Owner against the claim of any person, firm
or corporation arising out of any inaccuracy or alleged inaccuracy of the above
representation. Except as noted in Sublease document.
7. Subtenant covenants with Tenant to hire said premises and to pay
therefore as aforesaid, that it will commit no waste, nor suffer the same to be
committed thereon, nor injure nor misuse the same; and also that it shall not
make alterations therein, for use the same for any purpose but that hereinbefore
authorized. Subtenant has inspected the Sublet Space and accepts same in their
present condition, without any warranties or representations (express or
implied) being relied upon and is relying upon its own inspection. Subtenant
further covenants that the Sublease shall not be assigned, encumbered or
otherwise transferred, the Sublet Space shall not be further sublet by
Subtenant, in whole or in part, and Subtenant shall neither suffer nor permit
any of the Sublet Space to be used or occupied by others without the prior
consent of Owner in each instance.
8. In the event of a default by Tenant under the Lease which results in
termination of such lease, the Sublease shall, at the option of the Owner,
remain in full force and effect and the Subtenant shall attorn to and recognize
Owner as landlord under the Sublease and shall promptly upon such Owner's
request, execute and deliver all instruments necessary or appropriate to confirm
such attornment and recognition. The Subtenant hereby waives all rights under
any present or future law or otherwise to elect, by reason of the termination of
the Lease, to terminate the Sublease or surrender possession of the premises
demised thereby.
9. This Consent shall not be construed as a consent by Owner to, or as
permitting, any other or further licensing, subletting or assignment by Tenant
or Subtenant or any amendment of the Sublease.
10. Although a duplicate original of the Sublease has been delivered to
Owner for its information, Owner is not a party thereto and is not bound by its
provisions; however, any modification or amendment to the Sublease without the
prior written consent of Owner in each instance, shall be deemed a default under
the Lease. Nothing contained herein shall be construed as a consent to, or
approval or ratification by Owner of, any of the particular provisions of the
Sublease or as a representation or warranty by Owner. Owner shall not be bound
or estopped in any way by the provisions of this Consent.
11. Tenant and Subtenant jointly represent that Subtenant is financially
responsible, of good reputation and is engaged in a business which meets the
standards set by Owner for the Building and its tenants. Subtenant will use the
Sublet Space for general offices purposes. and for no other purposes.
2
<PAGE>
12. Tenant and Subtenant agree that the liability of Owner under the
Lease, Sublease and this Consent and all matters pertaining to or arising out of
the tenancy and the use and occupancy of the Premises and the Sublet Space shall
be limited to Owner's interest in the Building and in no event shall Tenant or
Subtenant make any claim against or seek to impose any personal liability upon
any general or limited partner of Owner, or any principal of any firm or
corporation that may hereafter be or become the Owner.
13. Tenant shall continue during the term of the Lease or any renewals
thereof to be liable and responsible for the due performance of all of the
covenants, agreements, terms, provisions and conditions set forth in the Lease
or the Tenant's part to be performed including but not limited to its obligation
to pay all charges or sums which shall be come due to Owner from Subtenant by
reason of its occupancy of the Sublet Space. Nothing herein contained is
intended to waive or shall be construed to waive any breach of the Lease or any
right of the Owner against any person, firm, association, corporation or entity
liable or responsible for the performance of the Lease or to enlarge or increase
Owner's obligations thereunder, and all provisions, consents, agreements, terms
and conditions of the Lease are hereby declaimed to be in full force and effect.
14. If any provisions of this Consent shall be at variance with the
provisions of the Lease or Sublease, the provisions of this Consent shall
prevail. This Consent shall not be changed orally but only by an agreement in
writing signed by the party against whom the enforcement of such change is
sought. Any options to renew the Lease or Sublease and any options for
additional space contained in the Lease or Sublease are hereby deemed null and
void and of no force or effect.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed as of the _______ day of ____________________ , 2000.
TENANT:
C-Cube Micro Systems. Inc.
By: /s/ [ILLEGIBLE]
----------------------
SUBTENANT:
Broadview Networks, Inc.
By: /s/ Scott Matukas
----------------------
OWNER:
Mack-Cali Realty Group
By: ______________________
3
<PAGE>
Exhibit 10.39
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
Dated as of March 13, 2000
by and between
BELL ATLANTIC - PENNSYLVANIA, INC
and
BROADVIEW 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
13th day of March 2000 (the "Effective Date"), by and between Bell Atlantic
Pennsylvania, Inc. ("BA"), a Pennsylvania corporation with offices at 1717
Arch Street, Philadelphia, Pennsylvania 19103, and Broadview Networks, Inc.
("Broadview") a Delaware corporation with offices at 45-18 Court Square, Suite
300 Long Island City, New York 11101 (each individually, a "Party" and,
collectively, the "Parties").
WHEREAS, Broadview has requested, pursuant to Section 252(i) of the Act,
that BA make available to Broadview Interconnection, services and unbundled
Network Elements upon the same terms and conditions as provided in the
Interconnection Agreement (and any amendments thereto that have been approved
under applicable law) between MCImetro Access Transmission Services, Inc. and
BA, dated as of September 3, 1997 for the Commonwealth of Pennsylvania, approved
by the Commission under Section 252 of the Act, copies of which agreement and
any subsequent amendments thereto that have been approved under applicable law
being attached hereto as Appendix 1 (the "Separate Agreement"); and
WHEREAS, BA has undertaken to make such terms and conditions available to
Broadview 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 for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Broadview and BA hereby agree as follows:
1.0 Incorporation of Separate Agreement and Appendix 2 by Reference
1.1 Except as expressly stated herein, the terms and conditions of the
Separate Agreement, as it is in effect on the date hereof after giving effect to
operation of law, and of Appendix 2 attached hereto, are incorporated by
reference in their entirety herein and form an integral part of this Agreement.
1.2 References in the Separate Agreement to MCImetro Access Transmission
Services, Inc., or to MCIm or to MCI shall for purposes of this Agreement be
deemed to refer to Broadview.
1.3 References in the Separate Agreement 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 the Separate Agreement, this Agreement
shall continue in effect until the later of the date (a)of the
2
<PAGE>
expiration of the initial term of the Separate Agreement (which, for the
avoidance of any doubt, is August 31, 2000) or (b) the Separate Agreement is
otherwise terminated or expires.
1.4 All references in the Separate Agreement to "800/888" shall be deleted
in their entirety and replaced with the following: "800/888/877".
1.5 All usage data to be provided pursuant to Sections 3.1.3.8 and 3.1.3.9
of Attachment VIII of the Separate Agreement shall be sent to the following
address on behalf of Broadview:
Tim Bell
Broadview Networks, Inc.
45-18 Court Square
Suite 300
Long Island City, New York 11101
1.6 All certificates or other proof of insurance to be sent to BA under
Section 15 of Attachment VI of the Separate Agreement shall be sent to the
following address:
Director - Interconnection Services
Bell Atlantic - Telecom Industry Services
Room 1423
1095 Avenue of the Americas
New York, New York 10036
1.7 All notices, affidavits, exemption-certificates or other
communications to Broadview under Section 27.7 of Part A of the Separate
Agreement shall be sent to the following address:
Mr. Larry Edelson-Kane
Broadview Networks, Inc.
45-18 Court Square - Suite 300
Long Island City, NY 11101
1.8 All notices, affidavits, exemption-certificates or other
communications to BA under Section 27.7 of Part A of the Separate Agreement
shall be sent to the following address:
Tax Administration
Bell Atlantic Corporation
1095 Avenue of the Americas
3
<PAGE>
Room 3109
New York, New York 10036
Telephone: (212) 395-1280
Facsimile: (212) 597-2915
1.9 Notices to Broadview under Section 14.1 of Part A of the Separate
Agreement shall be sent to the following address:
Mr. Terrence J. Anderson
Broadview Networks, Inc.
45-18 Court Square - Suite 300
Long Island City, NY 11101
Telephone: (718) 707-8890
Facsimile: (718) 706-9416
1.10 Notices to BA under Section 14.1 of Part A of the Separate Agreement
shall be sent to the following address:
Director - Interconnection Services
Bell Atlantic Wholesale Markets
1095 Avenue of the Americas
Room 1423
New York, NY 10036
Facsimile: 212/704-4381
with a copy to:
Bell Atlantic Network Services, Inc.
Attn: Jack H. White, Jr.,
Associate General Counsel
1320 N. Court House Road, 8th Floor
Arlington, Virginia 22201
Telephone: (703) 974-1368
Facsimile: (703) 974-0744
with a copy to:
Bell Atlantic-Pennsylvania, Inc.
Attn: General Counsel
37th Floor
1717 Arch Street
Philadelphia, PA 19103
4
<PAGE>
1.ll The rates, charges and other terms set forth in Appendix 2 hereto shall
replace and supersede in their entirety the rates, charges and other terms set
forth in Table 1 of Attachment 1 to the Separate Agreement.
2.0 Clarifications
2.1 Part B, definition of "Local Traffic" set forth at Section 1.71 of
Part B of the Separate Agreement, is hereby deleted in its entirety and
replaced as follows:
"'Local Traffic' means traffic that is originated by an end user
subscriber of one Party on that Party's network and terminates to an
end user subscriber 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 Bell Atlantic's Tariffs, or, if the
Commission has defined local calling areas applicable to all Local
Exchange Carriers, 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')."
(b) A new sentence (on reciprocal compensation arrangements) is
hereby added at the end of Section 2.4.3 of Attachment IV of the
Separate Agreement, as follows:
"In addition, the reciprocal compensation arrangements set
forth in this Agreement are not applicable to exchange access,
including origination or termination of Internet Traffic".
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 Broadview hereunder,
then BA may, at its sole option, avail itself of any such determination by
providing written notice thereof to Broadview.
2.3 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.
2.4 For the avoidance of doubt, the Parties acknowledge and agree that
the term "Dedicated Transport", as described in Section 10 of Attachment III of
the Separate Agreement, includes subscriber premises only if such premises
contain Central Office switching equipment used for interoffice transmission to
and from the other end of the Dedicated Transport path.
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 Commission, other administrative body or court for
reconsideration or reversal of any determination made by any of
5
<PAGE>
them, or to seek review in any way of any portion of this Agreement in
connection with Broadview's election under Section 252(i) of the Act.
2.6 Notwithstanding any other provisions of this Agreement, BA shall have no
obligation to perform under this Agreement until such time as Broadview 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 Commonwealth of Pennsylvania as a local exchange
carrier.
6
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date first set forth above.
BROADVIEW NETWORKS, INC. BELLATLANTIC - PENNSYLVANIA, INC.
By: /s/ Eric G. Roden By: /s/ Michael A. Daly
-------------------------- -----------------------------
Printed: Eric G. Roden Printed: For Jeffrey A. Masoner
--------------------- ------------------------
Title: Chief Operating Officer Title: Vice-President - Interconnection
----------------------- --------------------------------
Services Policy & Planning
--------------------------
<PAGE>
APPENDIX 1
<PAGE>
TABLE OF CONTENTS
A. GENERAL TERMS AND CONDITIONS A-2
Section 1 - Scope of This Agreement A-2
1.4 Construction A-3
Section 2 - Regulatory Approvals A-4
Section 3 - Term of Agreement A-5
Section 4 - Charges and Payment A-6
Section 5 - Assignment A-6
Section 6 - Compliance with Laws A-6
Section 7 - Governing Law A-7
Section 8 - Relationship of Parties A-7
Section 9 - No Third Party Beneficiaries A-8
Section 10 - Intellectual Property Rights A-8
Section 11 - Indemnification A-9
Section 12 - Limitation of Liability A-10
Section 13 - Warranties A-11
Section 14 - Notices A-12
Section 15 - Technical References A-13
Section 16 - Remedies A-14
Section 17 - Waivers A-14
Section 18 - Survival A-15
Section 19 - Force Majeure A-15
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT-PENNSYLVANIA PART A-i
<PAGE>
July 8, 1997 PART A
Section 20 - Publicity A-20
Section 21 - Default and Termination A-16
21.3 Billing Disputes A-16
Section 22 - Confidentiality A-18
Section 23 - Audits and Examinations A-21
Section 24 - Dispute Resolution Procedures A-22
Section 25 - Bona Fide Request Process for Further Unbundling A-23
Section 26 - Branding A-25
Section 27 - Taxes A-26
Section 28 - Responsibility for Environmental Contamination A-29
Section 29 - Facilities A-29
Section 30 - Option to Obtain Services Under Other Agreements A-30
Section 31 - Other Services A-30
Section 32 - Provision and Use of Services A-31
Section 33 - Selection of IntraLATA Telecomm. Service Provider A-32
Section 34 - Service Standards A-32
Section 35 - Subcontracting A-33
Section 36 - Amendments and Modifications A-33
Section 37 - Severability A-33
Section 38 - Headings Not Controlling A-34
Section 39 - Entire Agreement A-34
Section 40 - Counterparts A-34
Section 41 - Successors and Assigns A-34
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-ii
<PAGE>
July 8, 1997 PART A
Section 42 - Good Faith Performance A-34
Section 43 - Joint Work Product A-34
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT-PENNSYLVANIA PART A-iii
<PAGE>
July 8, 1997 PART A
MCImetro/Bell Atlantic
INTERCONNECTION AGREEMENT 1997
This MCImetro/Bell Atlantic Interconnection Agreement (the "Agreement"),
effective on the date the Pennsylvania Public Utility Commission approves this
Agreement, is entered into by and between MCImetro Access Transmission Services,
Inc. (" MCIm"), a Delaware corporation, and Bell Atlantic-Pennsylvania, Inc.
("Bell Atlantic" or "BA"), a Pennsylvania corporation, to establish the rates,
terms and conditions for the purchase and provision of Local Interconnection,
Local Resale, unbundled Network Elements and other services, all as set forth in
this Agreement (individually referred to as the "service" or collectively as the
"services") for the purpose of the purchasing Party's provision of Telephone
Exchange Service, Exchange Access Service, and/or Telecommunications Services.
WHEREAS, on February 8, 1996, the Communications Act of 1934, 47 U.S.C. (S)
151, et seq., (the "Act") was amended by the Telecommunications Act of 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Telecommunications Carriers and Local Exchange Carriers; and
WHEREAS, the Parties are Telecommunications Carriers and Local Exchange
Carriers; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Incumbent Local Exchange Carriers, and Bell Atlantic is an
Incumbent Local Exchange Carrier; and
WHEREAS, the Parties wish to interconnect their local exchange networks for
the provision of Telephone Exchange Service, for the transmission and
termination of local calls, so that subscribers of each can receive local calls
that originate on the other's network and place local calls that terminate on
the other's network, and for use in the provision of Exchange Access Service
("Local Interconnection"); and
WHEREAS, MCIm wishes to purchase Telecommunications Services for resale
to others (" Local Resale" or "Services for Resale"), and Bell Atlantic is
willing to provide such service; and
WHEREAS, MCIm wishes to purchase on an unbundled basis Network Elements,
and to use such services for the provision of Telecommunications Services to
others, and Bell Atlantic is willing to provide such services on the terms set
forth herein; and
WHEREAS, the Parties intend the rates, terms and conditions of this
Agreement, and their performance of obligations thereunder, to comply with the
Act, the Rules and Regulations of the Federal Communications Commission ("FCC"),
and the orders, rules and regulations of the Pennsylvania Public Utility
Commission (the "Commission");
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-1
<PAGE>
July 8, 1997 PART A
NOW, THEREFORE, in consideration of the premises and the mutual covenants
of this Agreement, and intending to be legally bound by this Agreement, the
Parties hereby covenant and agree as follows:
PART A -- GENERAL TERMS AND CONDITIONS
Section 1. Scope of this Agreement
1.1 This Agreement, consisting of Parts A, B and C, specifies the rights and
obligations of each Party with respect to the purchase and sale of Local
Interconnection, Local Resale and Network Elements. This PART A sets forth the
general terms and conditions governing this Agreement. Capitalized terms used in
this Agreement shall have the meanings defined in PART B -- DEFINITIONS, or as
otherwise elsewhere defined throughout this Agreement. PART C sets forth, among
other things, descriptions of the services, pricing, technical and business
requirements, and physical and network security requirements.
LIST OF ATTACHMENTS COMPRISING PART C:
I. Price Schedule
II. Local Resale
III. Network Elements
IV. Interconnection
V. Collocation
VI. Rights of Way
VII. Number Portability
VIII. Business Process Requirements
IX. Security Requirements
X. Performance Reporting
1.2 Bell Atlantic shall provide the services in any Technically Feasible
Combination requested by MCIm, pursuant to the terms of this Agreement and
in accordance with the requirements of Applicable Law, or where
appropriate, the Bona Fide Request ("BFR") process set forth in Section
25 (BFR Process for Further Unbundling)of Part A, except that Local Resale
shall be provided pursuant to Attachment II. Neither Party shall
discontinue or refuse to provide any service provided or required
hereunder, except in accordance with the terms hereof, without the other
Party's written agreement. Bell Atlantic shall not reconfigure,
reengineer or otherwise redeploy its network in a manner which would
impair MCIm's ability to offer Telecommunications Services in the manner
contemplated by this Agreement, the Act or the FCC's Rules and Regulations
without providing notice of Network Changes in accordance with the Act
and FCC Rules and Regulations.
1.3 The Parties acknowledge that some of the services, facilities and
arrangements provided pursuant to this Agreement are or will be available
under and subject to the
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-2
<PAGE>
July 8, 1997 PART A
terms of the federal or state Tariffs of the Party providing them. To the
extent that a Tariff of a Party applies to any service, facility or
arrangement provided pursuant to this Agreement, the following shall apply:
1.3.1 The rates and charges set forth in Attachment I shall remain
fixed for the term of this Agreement or until superseded by such rates
(whether interim or permanent) as may be applied by the Commission,
notwithstanding that either of such rates may be different from those set
forth in any effective, pending or future Tariff of the providing Party,
(including any changes or modifications to any such Tariff--or any new
Tariff--filed after the Effective Date of this Agreement); provided, however,
this Section 1.3.1 shall remain subject to Section 1.3.3.
1.3.2 This Agreement and any applicable Tariffs of either Party shall be
construed whenever possible to avoid any conflict between them. The fact that
a condition, term, right or obligation appears in the Agreement and not in a
Tariff, or in a Tariff but not in the Agreement, shall not be interpreted as,
or deemed grounds for finding, a conflict for the purposes of this Section
1.3.
1.3.3 Any change or modification to any Tariff (including any Tariff filed
after the Effective Date hereof)filed by either Party that materially and
adversely impacts the provision or receipt of services hereunder or which
materially and adversely alters the terms hereof shall only be effective
against the other Party to the extent permitted by: (i) that Party's written
consent; or (ii) an affirmative order of the Commission. Each Party shall
file any required Tariff revisions, modifications or amendments in order to
comply with Applicable Law and to continue performance of this Agreement in a
lawful manner.
1.4 Construction
1.4.1 For purposes of this Agreement, certain terms have been defined in Part
B or elsewhere in this Agreement. These terms will have the meanings stated
in this Agreement, which may differ from, or be in addition to, the normal
definition of the defined word. A defined word intended to convey the meaning
stated in this Agreement is capitalized when used. Other terms that are
capitalized, and not defined in this Agreement, shall have the meaning stated
in the Act.
1.4.2 Unless the context clearly indicates otherwise, any defined term which
is defined or used in the singular shall include the plural, and any defined
term which is defined or used in the plural shall include the singular.
1.4.3 The words "shall" and "will" are used interchangeably throughout this
Agreement and the use of either indicates a mandatory requirement. The use
of one or the other shall not mean a different degree of right or obligation
for either Party.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-3
<PAGE>
July 8, 1997 PART A
1.4.4 Conflicts among terms in Parts A and B of this Agreement, the
Attachments and the Exhibits thereto, and the Tariffs shall be
resolved in accordance with the following order of precedence, where
the document identified in Subsection "(i)" shall have the highest
precedence: (i) Parts A and B of this Agreement; (ii) the Attachments
and the Exhibits thereto; and (iii) the Tariffs. The fact that a
matter is addressed in one of these documents, but not in another,
shall not constitute a conflict for purposes of this Section 1.4.4.
Section 2. Regulatory Approvals
2.1 The Parties shall promptly submit this Agreement, and any amendment or
modification hereof, to the Commission for approval in accordance with
Section 252 of the Act. Following such submission, the Parties shall submit
the Agreement to any other applicable governmental entity for any requisite
approvals. In the event any governmental authority or agency rejects any
provision hereof, the Parties shall negotiate promptly and in good faith
such revisions as may reasonably be required to achieve approval.
2.2 In the event the FCC or the Commission promulgates rules or
regulations, or issues orders, or a court of competent jurisdiction issues
orders, which make unlawful any provision of this Agreement, or which
materially reduce or alter the services required by statute or regulations
and embodied in this Agreement, then the Parties shall negotiate promptly
and in good faith in order to amend the Agreement to substitute contract
provisions which conform to such rules, regulations or orders. In the event
the Parties cannot agree on an amendment within thirty (30) days after the
date any such rules, regulations or orders become effective, then the
Parties shall resolve their dispute under the applicable procedures set
forth in Section 24 (Dispute Resolution Procedures) hereof.
2.3 The Parties intend that any services requested by either Party relating
to the subject matter of this Agreement that are not offered hereunder will
be incorporated into this Agreement by amendment upon agreement by the
Parties.
2.4 In the event that any legally effective legislative, regulatory,
judicial or other legal action materially affects any material terms of
this Agreement, or the ability of MCIm or Bell Atlantic to perform any
material terms of this Agreement, MCIm or Bell Atlantic may, on thirty
(30)days written notice (delivered not later than thirty (30) days
following the date on which such action has become legally binding or has
otherwise become legally effective) require that such terms be
renegotiated, and the Parties shall renegotiate in good faith such mutually
acceptable new terms as may be required.
2.5 When this Agreement is filed with the Commission for approval, the
Parties will request that the Commission: (a) approve the Agreement, and
(b) refrain from taking any action to change, suspend or otherwise delay
implementation of the Agreement.
MClm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-4
4
<PAGE>
July 8, 1997 PART A
2.6 Each Party shall be responsible for obtaining and keeping in effect all
FCC, Commission, franchise authority and other governmental approvals, that
may be required in connection with the performance of its respective
obligations under this Agreement.
Section 3. Term of Agreement
3.1 This Agreement shall become effective as of the Effective Date stated
above and, except as otherwise provided in this Agreement, shall remain in
effect until August 31, 2000, and thereafter until terminated as provided
in this Agreement. At least one hundred eighty (180) days before the term
expires, either Party shall file with the Commission any request for an
extension of that term, and shall on the same day provide notice to the
other Party. At least one hundred fifty (150) days before the term expires,
the other Party shall respond to the requested extension. If for any reason
a new agreement has not been reached by the end of the three-year term, the
existing interconnection agreement shall continue, month-to-month, under
the same terms and conditions, subject to a true-up, until resolved by the
Commission.
3.2 This Agreement shall be effective between the Parties as of the
Effective Date, notwithstanding the pendency of proceedings challenging the
Commission's approval of the Agreement.
3.3 Each Party recognizes that the services being provided under this
Agreement at the time of its termination may need to be continued without
interruption thereafter, and that upon such termination, either Party may
itself provide or retain another vendor to provide comparable services.
Each Party agrees to cooperate in an orderly and efficient transition to
the other Party or another vendor such that the level and quality of the
services are not degraded, and to exercise reasonable efforts to effect an
orderly and efficient transition.
3.4 Unless a service is required to be offered by a Party under Applicable
Law, either Party may terminate any service provided under this Agreement
upon thirty (30) days prior written notice to the other Party unless a
different notice period or different conditions are specified in this
Agreement (including, but not limited to, in an applicable Tariff or
Applicable Law) for termination of such service, in which event such
specified period and/or conditions shall apply. Upon termination of its
purchase of a service by the purchasing Party, the purchasing Party shall
pay any applicable termination charges specified in this Agreement. Upon
termination of a Local Resale service by Bell Atlantic, co, MCIm shall be
entitled to continue providing the terminated service to MCIm's
subscribers on a grandfathered basis to the same extent, and subject to
the same terms and conditions, as would apply to such subscribers if they
had been subscribers of Bell Atlantic for the terminated service at the
time the service is terminated, and Bell Atlantic shall continue to
provide such services to MCIm on the same basis.
3.5 Following the expiration of this Agreement, this Agreement shall remain
in effect as to any Expiring Service for the remainder of any contract
period applicable to such Expiring Service at the time of the expiration of
this Agreement. If an Expiring Service
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-5
5
<PAGE>
July 8, 1997 PART A
is terminated prior to the expiration of the contract period applicable
to such Expiring Service, MCIm shall pay any termination charge provided
for in this Agreement, in an applicable Tariff, or in the contract
applicable to the Expiring Service. Following expiration of the
applicable contract period for an Expiring Service, the Expiring Service,
until terminated, shall be subject to: (i) any effective agreement
superseding this Agreement; or (ii) to the extent such Expiring Service
is not covered by such superseding agreement, applicable Tariffs. For the
purposes of this Section 3.5, "Expiring Service" means: (a) any Local
Resale service that, upon expiration of the term of this Agreement, is
being provided under this Agreement and is subject to a remaining
contract period greater than one (1) month; or (b) any Local Resale
service: (i) for which an order has been submitted and accepted pursuant
to this Agreement prior to the expiration of this Agreement but such
service is not being provided at the expiration of this Agreement; and
(ii) that is subject to an initial contract period which is greater than
one (1) month.
Section 4. Charges and Payment
4.1 In consideration of the services provided under this Agreement, the
purchasing Party shall pay the charges set forth in Attachment I. The
billing and payment procedures for charges incurred by a purchasing Party
hereunder are set forth in Attachment VIII.
Section 5. Assignment
5.1 Any assignment or delegation by either Party to any non-affiliated
entity of any right, obligation or duty, or of any other interest
hereunder, in whole or in part, without the prior written consent of the
other Party shall be void (except the assignment of a right to moneys due
or to become due). A Party assigning or delegating this Agreement or any
right, obligation, duty or other interest hereunder to an Affiliate shall
provide written notice to the other Party. All obligations and duties of
any Party under this Agreement shall be binding on all successors in
interest and assigns of such Party. No assignment or delegation hereof
shall relieve the assignor of its obligations under this Agreement.
5.2 If any obligation of either Party is performed by a subcontractor or
Affiliate, such Party shall remain fully responsible for the performance
of this Agreement in accordance with its terms.
Section 6. Compliance with Laws
6.1 Each Party shall perform terms, conditions and operations under this
Agreement in a manner that complies with all Applicable Law, including
all regulations and judicial or regulatory decisions of all duly
constituted governmental authorities of competent jurisdiction. Each
Party shall be responsible for obtaining and keeping in effect all FCC,
state regulatory commission, franchise authority and other regulatory
approvals that may be required in connection with the performance of its
obligations under this Agreement. Each Party shall reasonably cooperate
with the other in obtaining and maintaining any approvals required by
this Section. In the event the Act or FCC Rules and Regulations
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT -PENNSYLVANIA PART A-6
6
<PAGE>
July 8, 1997 PART A
applicable to this Agreement are held invalid, this Agreement shall
survive, and the Parties shall promptly renegotiate any provisions of this
Agreement which, in the absence of such invalidated Act, Rule or
Regulation, are insufficiently clear to be effectuated.
6.2 Except as otherwise specified in this Agreement, each Party shall be
responsible for: (i) all costs and expenses it incurs in complying with its
obligations under this Agreement; and (ii) the development, modification,
technical installation and maintenance of any systems or other
infrastructure which it requires to comply with and to continue complying
with its responsibilities and obligations under this Agreement.
Section 7. Governing Law
7.1 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 Act and the laws of the Commonwealth of Pennsylvania,
without regard to its conflicts of laws rules.
Section 8. Relationship of Parties
8.1 Each Party is an independent contractor, and has and hereby retains the
right to exercise full control of and supervision over its own performance
of its obligations under this Agreement.
8.2 Each Party retains full control over the employment, direction,
compensation and discharge of all of its employees, agents and contractors
assisting in the performance of its obligations under this Agreement. Each
Party will be solely responsible for all matters relating to payment of its
employees, agents and contractors, and payment of Social Security and other
taxes in association with such employees, agents and contractors, and
withholding and remittance of taxes from such employees, agents and
contractors.
8.3 Nothing contained within this Agreement shall:
8.3.1 Make either Party the agent, servant or employee, of the other
Party;
8.3.2 Grant either Party the authority to enter into a contract on
behalf of, or otherwise legally bind, the other Party in any
way;
8.3.3 Create a partnership, joint venture, or other similar
relationship between the Parties; or
8.3.4 Grant to either Party a franchise, distributorship, or
similar interest.
8.4 The relationship of the Parties under this Agreement is a non-exclusive
relationship. Each Party shall have the right:
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-7
7
<PAGE>
July 8, 1997 PART A
8.4.1 To provide services to be provided by it under this Agreement to
persons other than the other Party; and
8.4.2 To purchase services which can be purchased by it under this
Agreement from persons other than the other Party.
Section 9. No Third Party Beneficiaries
9.1 Except as may be specifically set forth in this Agreement, this
Agreement does not provide and shall not be construed to provide any third
parties (including, but not limited to, subscribers or subcontractors of a
Party) with any right, remedy, claim, reimbursement, cause of action, or
other privilege. The provisions of this Agreement are for the benefit of
the Parties hereto and not for any other person, provided, however, that
this shall not be construed to prevent either Party from providing its
Telecommunications Services to any entities.
Section 10. Intellectual Property Rights
10.1 Any intellectual property which originates from or is developed by a
Party shall remain in the exclusive ownership of that Party. Except for a
limited license to use a Party's patents or copyrights to the extent
necessary for the Parties to use any facilities or equipment (including
software) or to receive any service solely as provided under this
Agreement, no license in patent, copyright, trademark or trade secret, or
other proprietary or intellectual property right now or hereafter owned,
controlled or licensable by a Party, is granted to the other Party or shall
be implied or arise by estoppel.
10.2 Bell Atlantic shall indemnify MCIm with respect to MCIm's use,
pursuant to the terms of this Agreement, of intellectual property
associated with any new Bell Atlantic network equipment or software
acquisitions. Bell Atlantic warrants that it will not enter into any
licensing agreements with respect to new Bell Atlantic network equipment or
software acquisitions that contain provisions that would disqualify MCIm
from using or interconnecting with such network equipment or software
pursuant to the terms of this agreement. Bell Atlantic also warrants that
it has not and will not intentionally modify any existing licensing
agreements for existing network equipment or software in order to
disqualify MCIm from using or interconnecting with such network equipment
or software, pursuant to the terms of this agreement. To the extent that
the providers of equipment or software in Bell Atlantic's network provide
Bell Atlantic with indemnities covering intellectual property liabilities
and those indemnities allow a flow through of protection to third parties,
Bell Atlantic shall flow those indemnity protections through to MCIm. Bell
Atlantic will inform MCIm of any pending or threatened intellectual
property claims relating to Bell Atlantic's network of which Bell Atlantic
is aware and will update that notification periodically as needed, so that
MCIm receives maximum notice of any intellectual property risks it might
want to address. Notwithstanding any part of this Section 10, MCIm retains
the right to pursue legal remedies against Bell Atlantic if Bell Atlantic
is at fault in causing intellectual property liability to MCIm.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-8
8
<PAGE>
July 8, 1997 P.
10.2.1 For purposes of Section 10.2, Bell Atlantic's obligation to
indemnify include the obligation to indemnify and hold MCIm harmless
from and against any loss, cost, expense or liability arising out of a
claim that MCIm's use, pursuant to the terms of this Agreement, of
such new Bell Atlantic network equipment or software infringes the
intellectual property rights of a third party. Moreover, should any
such network equipment or software or any portion there provided by
Bell Atlantic hereunder become, or, in Bell Atlantic's reasonable
opinion, be likely to become, the subject of a claim of infringement,
or should MCIm's use thereof be finally enjoined, Bell Atlantic shall,
at its immediate expense and at its choice:
10.2.1.1 Procure for MCIm the right to continue using such
material; or
10.2.1.2 Replace or modify such material to make it non-
infringing provided such replacement or modification is
functionally equivalent.
10.3 Unless otherwise mutually agreed upon, neither Party shall publish or
use the other Party's logo, trademark, or service mark in any product,
service, advertisement, promotion, or any other publicity matter, except
that nothing herein shall prohibit lawful comparative advertising or
comparative marketing.
Section 11. Indemnification
11.1 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")
incurred by the indemnified Party to the extent that such Loss is: (a)
suffered, made, instituted, or asserted by any other 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, incurred during the term of this Agreement and to the extent
legally caused by the acts or omissions of the indemnifying Party,
regardless of the form of action; or (b) suffered, made, instituted, or
asserted by the indemnifying Party's own customer(s) against the
indemnified Party arising out of the indemnified Party's provision of
services to the indemnifying Party under this Agreement, except to the
extent the Loss arises from a breach of this Agreement by the indemnified
Party. Notwithstanding the foregoing indemnification, nothing in this
Section 11 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.
11.2 MCIm shall indemnify, defend and hold harmless Bell Atlantic, Bell
Atlantic's Affiliates, and the directors, officers and employees of
Bell Atlantic and Bell Atlantic's Affiliates, from and against any
claim, demand, suit, action, judgment, liability, damage or loss (including
reasonable costs, expenses and attorneys' fees on account thereof), that
arises out of or results from: (i) MCIm's negligent use or occupancy of a
Bell Atlantic
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-9
9
<PAGE>
July 8, 1997 PART A
NID; (ii) wiring, facilities, equipment or other apparatus, negligently
installed by MCIm in or on a Bell Atlantic NID, or negligently connected by
MCIm to a Bell Atlantic NID; or (iii) the negligent acts or omissions of
MCIm, MCIm's Affiliates, or the employees, agents or contractors of MCIm or
MCIm's Affiliates, in connection with a Bell Atlantic NID. Where the NID is
not used by Bell Atlantic or another Telecommunications Carrier (except
MCIm) to provide service to the premise, MCIm shall have the burden, as
between Bell Atlantic and MCIm, to rebut the presumption that the claim,
demand, suit, action, judgment, liability, damage or loss arises from
wiring, facilities, equipment or other apparatus, negligently installed by
MCIm in or on a Bell Atlantic NID, or negligently connected by MCIm to a
Bell Atlantic NID. For the purposes of this Section 11.2, references to
"negligence" or "negligently" shall be read to also encompass acts of gross
negligence and/or intentional misconduct.
11.3 The indemnification provided herein shall be conditioned upon:
11.3.1 The indemnified Party shall promptly notify the indemnifying
Party of any action taken against the indemnified Party relating to
the indemnification, provided that failure to notify the indemnifying
Party shall not relieve it of any liability it might otherwise have
under this Section 11 to the extent it was not materially prejudiced
by such failure of notification.
11.3.2 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. In the event the indemnifying Party does not accept
the defense of any such action, the indemnified Party shall have the
right to employ counsel for its own defense at the expense of the
indemnifying Party.
11.3.3 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.
11.3.4 In any action for which indemnity is sought, the indemnified
Party shall assert any and all provisions in applicable Tariffs that
limit liability to third parties as a bar to any recovery by the third
party claimant in excess of applicable limitations of liability.
11.3.5 The indemnified Party shall offer the indemnifying Party all
reasonable cooperation and assistance in the defense of any such
action.
Section 12. Limitation of Liability
12.1 Neither Party shall be liable to the other for any indirect,
incidental, special or consequential damages arising out of or related to
this Agreement or the provision of service hereunder. Notwithstanding the
foregoing limitation, a Party's liability shall not
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-10
10
<PAGE>
July 8, 1997 PART A
be limited by the provisions of this Section 12 in the event of its willful
or intentional misconduct, including gross negligence. Bell Atlantic shall be
liable to MCIm for lost revenues resulting from Bell Atlantic's breach of
this Agreement only to the same extent that Bell Atlantic's Tariffs provide
liability for Bell Atlantic end user subscribers' revenue losses. A Party's
liability shall not be limited with respect to its indemnification
obligations.
Section 13. Warranties
13.1 As more specifically set forth herein, each Party shall perform its
obligations hereunder at Parity, as defined in Part B of this Agreement,
which definition is intended to embody the performance provisions set forth
in 47 U.S.C. (S) 251, and any implementing regulations thereunder, as those
provisions may apply to the Party and obligation in question.
13.2 As more specifically set forth in Attachment II, Bell Atlantic shall
provide Local Resale at Parity.
13.3 As more specifically set forth in Attachment III, Bell Atlantic shall
provide Network Elements at Parity.
13.4 As more specifically set forth in Attachment IV, Bell Atlantic shall
provide Interconnection at Parity and on a Non-Discriminatory Basis. MCIm
shall provide Interconnection on a Non-Discriminatory Basis.
13.5 As more specifically set forth in Attachment V, Bell Atlantic shall
provide Collocation in accordance with the legally effective rules,
regulations and orders of the FCC and the Commission.
13.6 As more specifically set forth in Attachment VI, Bell Atlantic shall
provide Non-Discriminatory access to poles, ducts, conduits, and ROW owned or
controlled by Bell Atlantic, in accordance with the requirements of section
224 of the Act and legally effective rules, regulations and orders of the FCC
and the Commission.
13.7 As more specifically set forth in Attachment VII, Bell Atlantic and MCIm
shall provide Interim Number Portability and Number Portability in accordance
with the legally effective rules, regulations and orders of the FCC and the
Commission.
13.8 As more specifically set forth in Attachment VIII, Bell Atlantic and
MCIm shall meet Business Process Requirements.
13.9 As more specifically set forth in Attachment VIII, Bell Atlantic shall
provide Non-Discriminatory access to telephone numbers for as long as Bell
Atlantic remains the code administrator for the North American Numbering
Plan.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-11
11
<PAGE>
July 8, 1997 PART A
13.10 As more specifically set forth in Attachment VIII, Bell Atlantic and
MCIm shall provide dialing parity in accordance with the legally effective
rules, regulations and orders of the FCC and the Commission.
13.11 As more specifically set forth in Attachment IX, Bell Atlantic and MCIm
shall meet security requirements, to the extent applicable to the security
requirement in question.
13.12 As more specifically set forth in Attachment X, Bell Atlantic shall
provide performance reporting.
EXCEPT AS SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES
WITH RESPECT TO ITS SERVICES, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, IN
FACT OR IN LAW. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE A PARTY'S
EXCLUSIVE WARRANTIES WITH RESPECT TO ITS SERVICES AND ARE IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, IN FACT OR IN LAW.
EACH PARTY DISCLAIMS ANY AND ALL OTHER WARRANTIES WITH RESPECT TO ITS
SERVICES, INCLUDING , BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND
---------------------------------
FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES AGAINST INFRINGEMENT.
--------------------------------
Section 14. Notices
14.1 Except as otherwise provided herein, or where context or services
dictate that immediate notice be given, all notices or other communication
hereunder shall be deemed to have been duly given when made in writing and
delivered in person or deposited in the United States mail, certified mail,
postage prepaid, return receipt requested and addressed as follows:
To MCIm: MCImetro Access Transmission Services, Inc.
Attention: Vice President
1650 Tysons Boulevard
McLean, VA 22102
Copy to: General Counsel
MCI Communications Corporation
1801 Pennsylvania Ave., N.W.
Washington, DC 20006
To Bell Atlantic: Bell Atlantic Network Services, Inc.
Attention: Director, Interconnection Initiatives
1320 North Courthouse Road, 9th Floor
Arlington, VA 22201
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-12
12
<PAGE>
July 8, 1997 PART A
copy to: Legal Department
Bell Atlantic Network Services, Inc.
Attention: Counsel, Carrier Services
1320 North Courthouse Road, 8th Floor
Arlington, VA 22201
If personal delivery is selected to give notice, a receipt of such delivery
shall be obtained. The address to which notices or communications may be given
to either Party may be changed by written notice given by such Party to the
other pursuant to this Section 14.
Section 15. Technical References
15.1 The Parties agree that the Bell Atlantic technical references set forth
in Appendix I to this Part A (Technical Reference Schedule) provide the
current technical specifications for the services offered by Bell Atlantic
under this Agreement. Bell Atlantic reserves the right with reasonable
notification to revise its technical references for any reason including, but
not limited to, laws or regulations, conformity with updates and changes in
standards promulgated by various agencies, utilization of advances in the
state of technical arts, or the reflection of changes in the design of any
facilities, equipment, techniques, or procedures described or referred to in
the technical references. Notification of changes that are made to the
underlying Bell Atlantic services will; be made in conformance with the
requirements of Section 251(c)(5), Notice of Changes, of the Act, and the
FCC's Rules and Regulations. The Parties acknowledge that the general
technical references set forth below contain certain generally accepted
industry guidelines for particular interface and performance parameters for
telecommunications equipment used by LECs in the United States. Such accepted
technical references may be used by LECs to specify suitable equipment and
facilities components for use in their respective networks, to assure
interoperability between components that collectively comprise such networks,
and to specify the interface characteristics and typical end-to-end
performance of certain services.
15.2 The Parties acknowledge that they and their vendors and suppliers derive
guidance from such technical references, and make reasonable efforts to
conform to them. Requests for specific performance, functionality, or
capabilities not applied in a Party's network should be handled using the BFR
process set forth in Section 25 (BFR Process for Further Unbundling) of this
Part A.
15.3 If one or more of the technical requirements set forth in Appendix I are
in conflict, the Parties shall reasonably agree on which requirement shall
apply.
15.4 The Parties agree that they each intend, to the extent technically
feasible and commercially reasonable, to conform generally to industry
standards applicable to the Parties set by the OBF, within a reasonable time
after publication of final standards. With respect to OBF and other industry
standards, the Parties agree that they will negotiate in good faith the
applicability, technical feasibility and commercial
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-13
13
<PAGE>
July 8, 1997 PART A
reasonableness for implementation of such standards for services and
arrangements under the Agreement.
Section 16. Remedies
16.1 The obligations of the Parties and the services offered under this
Agreement may be unique. Accordingly, in addition to any other available
rights or remedies, either Party may sue in equity for specific performance.
16.2 In the event either Party fails to switch a subscriber to the other
Party's service as requested through a service request from the other Party,
within any applicable intervals set forth in this Agreement or required by
Applicable Law, or erroneously switches the other Party's subscriber away
from that Party, then such act (including the continued provision of
Telecommunications Services to such subscriber by the Party erroneously
switching or failing to switch) shall be deemed an improper change in
subscriber carrier selection commencing with the time at which such Party
erroneously failed to switch such subscriber, or erroneously switched such
subscriber. If such an improper change in subscriber carrier selection
should occur, the rights and obligations of the Parties shall be determined
in accordance with the regulations pertaining to such conduct on the part of
Interexchange Carriers as set forth in the FCC's Rules and Regulations, Part
64, Subpart K, as these may be amended from time to time. For the purpose of
this Section, Bell Atlantic shall be deemed an Interexchange Carrier.
16.3 At such time as the FCC or other competent regulatory body adopts
regulations implementing 47 U.S.C. Section 258 or otherwise adopt
regulations applicable to illegal or improper changes in local service, then
such regulations shall supersede those applicable to Interexchange Carriers
for the purposes of this Section 16.
16.4 Unless otherwise specifically provided hereunder, all rights of
termination, cancellation or other remedies prescribed in this Agreement, or
otherwise available, are cumulative and are not intended to be exclusive of
other remedies to which the injured Party may be entitled at law or equity.
Section 17 Waivers
17.1 A failure or delay of either Party (including any course of dealing or
course of performance) to enforce any of the provisions of this Agreement,
or any right or remedy available under this Agreement or at law or in
equity, or to require performance of any of the provisions of this
Agreement, or to exercise any option provided under this Agreement, shall in
no way be construed to be a waiver of such provisions, rights, remedies or
options.
17.2 Waiver by either Party of any default by the other Party shall not be
deemed a waiver of any other default.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-14
14
<PAGE>
July 8, 1997 PART A
Section 18. Survival
18.1 Any liabilities or obligations of a Party for acts or omissions
occurring prior to the expiration, cancellation or termination of this
Agreement, any obligation of a Party under any provision for
indemnification or defense (including, but not limited to, any of Sections
10, 11, 12, 23, 24, 28 and 29), Section 3, "Termination", Section 22,
"Confidential Information", any provision for limitation of liability, and
any obligation of a Party under any other provisions of this Agreement
which, by their terms, are contemplated to survive (or to be performed
after) expiration, cancellation or termination of this Agreement, shall
survive the expiration, cancellation or termination of the Agreement, but
solely to the minimum extent necessary to effectuate such provisions or
complete such performance.
Section 19. Force Majeure
19.1 Except as otherwise specifically provided in this Agreement
(including, by way of illustration, circumstances where a Party is required
to implement disaster recovery plans to avoid delays or failure in
performance and the implementation of such plans was designed to avoid the
delay or failure in performance), neither Party shall be liable for any
delay or failure in performance of any part of this Agreement by it caused
by acts or failures to act of the United States of America or any state,
district, territory, political subdivision, or other governmental entity,
acts of God or a public enemy, strikes, labor slowdowns, or other labor
disputes, but only to the extent that such strikes, labor slowdowns, or
other labor disputes also affect the performing Party, fires, explosions,
floods, embargoes, earthquakes, volcanic actions, unusually severe weather
conditions, wars, civil disturbances, or other causes beyond the reasonable
control of the Party claiming excusable delay or other failure to perform
("Force Majeure Condition"). In the event of any such excused delay in the
performance of a Party's obligation(s) under this Agreement, the due date
for the performance of the original obligation(s) shall be extended by a
term equal to the time lost by reason of the delay. In the event of such
delay, the delaying Party shall perform its obligations at a performance
level no less than that which it uses for its own operations. In the event
of such performance delay or failure by Bell Atlantic, Bell Atlantic
agrees to resume performance at Parity and in a Non-Discriminatory manner.
19.2 If any Force Majeure Condition occurs, the Party whose performance
fails or is delayed because of such Force Majeure Condition shall give
prompt notice to the other Party, and upon cessation of such Force Majeure
Condition, shall give like notice and commence performance hereunder as
promptly as reasonably practicable.
19.3 Notwithstanding Section 19.1, no delay or other failure by a Party to
perform shall be excused pursuant to this Section by the delay or failure
of a Party's subcontractors, materialmen, or suppliers to provide products
or services to the Party, unless such delay or failure is itself the
product of a Force Majeure Condition, and such products or services cannot
be obtained by the Party from other persons on commercially reasonable
terms.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-15
15
<PAGE>
July 8, 1997 PART A
Section 20. Publicity
20.1 Neither Party shall produce, publish, or distribute any press release
or other publicity referring to the other Party in connection with this
Agreement, without the prior written approval of the other Party, which
approval shall not be unreasonably withheld.
Section 21. Default and Termination
21.1 If a Party ("Breaching Party") materially breaches a material
provision of this Agreement (other than an obligation to make payment of
any amount billed under this Agreement), and such breach continues for
more than thirty (30) days after written notice thereof from the other
Party ("Injured Party"), then, except as otherwise required by Applicable
Law, the Injured Party shall have the right, upon notice to the Breaching
Party, to terminate or suspend this Agreement and/or the provision of
services.
21.2 If a purchasing Party fails to make a payment of any amount billed
under this Agreement by the due date stated on the providing Party's bill
and such failure continues for more than thirty (30) days after written
notice thereof from the providing Party, then, except as provided in
Section 21.3 or as otherwise required by Applicable Law, the providing
Party shall have the right, upon notice to the purchasing Party, to
terminate or suspend this Agreement and/or the provision of services.
21.3 Billing Disputes.
21.3.1 If a billing dispute arises concerning any charges billed
pursuant to this Agreement by a providing Party to a purchasing
Party, payments withheld or paid pending settlement of the dispute
shall be subject to interest at the rate set forth in Bell Atlantic's
interstate access tariff.
21.3.2 If the purchasing Party pays the bill in full by the payment
due date and later initiates a billing dispute pursuant to Attachment
VIII, Section 3.1.9, interest will apply as follows:
21.3.2.1 If the billing dispute is resolved in favor of the
purchasing Party, the purchasing Party shall receive a credit
from the providing Party. This credit will be an amount equal
to the disputed amount, plus interest at the rate set forth in
Bell Atlantic's interstate access tariff. This amount will apply
from the date of the purchasing Party's payment through the date
on which the purchasing Party receives payment of the
disputed amount and accrued interest from the providing Party.
21.3.2.2 If the dispute is resolved in favor of the providing
Party, neither a late payment charge nor an interest charge is
applicable.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-16
16
<PAGE>
July 8, 1997 PART A
21.3.3 If the purchasing Party withholds payment on the bill (in full or in
part) and initiates a billing dispute pursuant to Attachment VIII, Section
3.1.9, interest will apply as follows:
21.3.3.1 If the billing dispute is resolved in favor of the
providing Party, the purchasing Party shall pay the providing
Party a payment equal to the amount withheld by the purchasing
Party, plus interest at the rate set forth in Bell Atlantic's
interstate access tariff. This amount will apply from the payment
due date through the date on which the providing Party receives
payment of the disputed amount and accrued interest from the
purchasing Party.
21.3.3.2 If the dispute is resolved in favor of the purchasing
Party, neither a late payment charge nor an interest charge is
applicable.
21.4 Notwithstanding the foregoing, if a Party's material breach is for any
failure to perform in accordance with this Agreement which materially and
adversely affects the provision of service of the non-breaching Party's
subscribers, the non-breaching Party shall give notice of the breach and
the breaching Party shall cure such breach within ten (10) days or within a
period of time equivalent to the applicable interval required by this
Agreement, whichever is shorter, and if the breaching Party does not, the
non-breaching Party may, as its sole option, terminate this Agreement, or
any parts hereof. The nonbreaching Party shall be entitled to pursue all
available legal and equitable remedies for such breach.
21.5 MCIm may terminate this Agreement in whole or in part at any time for
any reason upon sixty (60) days prior written notice, except with respect
to termination of any particular service(s), in which case, upon thirty
(30) days prior written notice. MCIm's sole liability for such termination
shall be payment of amounts due for services provided up to the date of
termination, unless otherwise provided for in this Agreement or in a Tariff
providing a termination liability or minimum term for a service.
21.6 In the event of any termination under this Section 21 and, if
applicable, pursuant to Section 3.3, Bell Atlantic agrees to provide for an
uninterrupted transition of the services Bell Atlantic is providing to MCIm
at the time of termination to MCIm or another vendor designated by MCIm,
and MCIm agrees to provide for an uninterrupted transition of services MCIm
is providing to Bell Atlantic at the time of termination to Bell Atlantic
or another vendor designated by Bell Atlantic.
21.7 Notwithstanding any termination hereof, the Parties shall continue to
comply with their obligations under the Act to provide interconnection in
accordance with Applicable Law.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-17
17
<PAGE>
July 8, 1997 PART A
Section 22. Confidentiality
22.1 For the purposes of this Section 22, "Confidential Information" means
the following information disclosed by one Party ("Discloser") to the other
Party ("Recipient") in connection with this Agreement:
22.1.1 All information disclosed by either Party to the other pursuant
to Attachments I-X of this Agreement arising from the performance of
this Agreement, including, but not limited to, books, records, documents
and other information disclosed in an audit performed pursuant to this
Agreement; and
22.1.2 Such other information as is identified as Confidential
Information in accordance with Section 22.2.
22.2 All information which is to be treated as Confidential Information
under Section 22.1.2 shall:
22.2.1 If in written, graphic, electromagnetic, or other tangible form,
be marked as "Confidential Information"; and
22.2.2 If oral, (i) be identified by the Discloser at the time of
disclosure to be "Confidential Information", and (ii) be set forth in a
written summary which identifies the information as "Confidential
Information" and is delivered by the Discloser to the Recipient within
ten (10) days after the oral disclosure.
22.2.3 Each Party shall have the right to correct an inadvertent
failure to identify such oral information as Confidential Information
by giving written notification within thirty (30) days after the
information is disclosed. The Recipient shall, from that time forward,
treat such information as Confidential Information.
22.3 In addition to any requirements imposed by law, including, but not
limited to, 47 U.S.C. (S) 222, for a period of three (3) years from the
receipt of Confidential Information from the Discloser, except as otherwise
specified in this Agreement, the Recipient1 agrees:
22.3.1 To use the Confidential Information only for the purpose of
performing under this Agreement, including, to the extent applicable,
the planning and operation of the Recipient's network; and
22.3.2 To use the same degree of care that it uses with similar
confidential information of its own, to hold the Confidential
Information in confidence and to disclose it to no one other than
the directors, officers and employees of the Recipient and the
Recipient's Affiliates, having a need to know the Confidential
Information for the purpose of performing under this Agreement.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-18
18
<PAGE>
July 8, 1997 PART A
22.4 A Recipient may disclose the Discloser's Confidential Information to a
third party agent or consultant, provided that prior to such disclosure the
agent or consultant has executed a written agreement of non-disclosure and
non-use comparable in scope to the terms of this Section 22.
22.5 The Recipient may make copies of Confidential Information only as
reasonably necessary to perform its obligations and exercise its rights
under this Agreement. All such copies shall bear the same copyright and
proprietary rights notices as are contained on the original.
22.6 The Recipient shall return all Confidential Information defined in
Section 22.1.2 in the format in which it was received from the Discloser,
including any copies made by the Recipient, within thirty (30) days after a
written request is delivered to the Recipient, and/or destroy all such
Confidential Information, except for Confidential Information that the
Recipient reasonably requires to perform its obligations under this
Agreement. If the Recipient loses or makes an unauthorized disclosure of
the Discloser's Confidential Information, it shall notify the Discloser
immediately and use reasonable efforts to retrieve the lost or improperly
disclosed information.
22.7 The requirements of this Section 22 shall not apply to Confidential
Information:
22.7.1 Which was in the possession of the Recipient free of
restriction prior to its receipt from the Discloser;
22.7.2 After it becomes publicly known or available through no breach
of this Agreement by the Recipient, the Recipient's Affiliates, or the
directors, officers, employees, agents, or contractors, of the
Recipient or the Recipient's Affiliates;
22.7.3 After it is rightfully acquired by the Recipient free of
restrictions on its disclosure;
22.7.4 Which is independently developed by personnel of the Recipient;
or
22.7.5 To the extent the disclosure is required by law, or made to a
court, or governmental agency for the purpose of enforcing its rights
under this Agreement; provided the Discloser has been notified
of an intended disclosure promptly after the Recipient becomes aware
of a required disclosure or decides to make such a voluntary
disclosure to enforce its rights, the Recipient undertakes reasonable,
lawful measures to avoid disclosing the Confidential Information until
the Discloser has had reasonable time to seek a protective order, and
the Recipient complies with any protective order that covers the
Confidential Information to be disclosed.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-19
19
<PAGE>
July 8, 1997 PART A
22.8 Each Party's obligations to safeguard Confidential Information
disclosed prior to expiration, cancellation or termination of this Agreement
shall survive such expiration, cancellation or termination.
22.9 Confidential Information shall remain the property of the Discloser,
and the Discloser shall retain all of the Discloser's right, title and
interest in any Confidential Information disclosed by the Discloser to the
Recipient. Except as otherwise expressly provided elsewhere in this
Agreement, no license is granted by this Agreement with respect to any
Confidential Information (including, but not limited to, under any patent,
trademark, or copyright), nor is any such license to be implied, solely by
virtue of the disclosure of any Confidential Information.
22.10 Each Party agrees that the Discloser would be irreparably injured by a
breach of this Section 22 by the Recipient, the Recipient's Affiliates, or
the directors, officers, employees, agents or contractors of the Recipient
or the Recipient's Affiliates, and that the Discloser shall be entitled to
seek equitable relief, including injunctive relief and specific performance,
in the event of any breach of the provisions of this Section 22. Such
remedies shall not be deemed to be the exclusive remedies for a breach of
this Section 22, but shall be in addition to any other remedies available at
law or in equity.
22.11 The provisions of this Section 22 shall be in addition to and shall
not limit, alter, define or contradict any provisions of Applicable Law,
including, but not limited to, 47 U.S.C. (S) 222, and are not intended to
constitute a waiver by a Party of any right with regard to protection of the
confidentiality of information (whether or not defined as "Confidential
Information" for purposes of this Agreement) of the Party or its customers
provided by Applicable Law.
22.12 Without in any way limiting the foregoing provisions of Section 22,
each Party shall comply with 47 U.S.C. (S) 222, any implementing rules,
regulations, and orders thereunder, and other federal and state rules and
regulations addressing Customer Proprietary Network Information ("CPNI") and
Carrier Information. A Party shall not access (including, but not limited
to, through electronic interfaces and gateways provided under this
Agreement), use or disclose CPNI or other customer information unless the
Party has obtained any customer authorization required by Applicable Law for
such access, use and/or disclosure. By accessing, using or disclosing CPNI
or other customer information, a Party represents and warrants that the
Party has obtained any customer authorization required by Applicable Law
for such access, use or disclosure. A Party accessing, using or disclosing
CPNI or other customer information shall upon request by the other Party
provide proof of any customer authorization for such access, use or
disclosure, required by Applicable Law (including, copies of any written
authorization). Without limiting the foregoing provisions of this Section
22, where required by 47 U.S.C. (S) 222, or other provision of Applicable
Law, a Party shall obtain a signed letter of authorization from the
applicable end user in order to obtain CPNI or other customer information
from the other Party.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-20
20
<PAGE>
July 8, 1997 PART A
22.13 Each Party ("Auditing Party") shall have the right to audit the other
Party ("Audited Party"), to ascertain whether the Audited Party is
complying with the requirements of Applicable Law and this Agreement with
regard to the Audited Party's access to, and use and disclosure of, CPNI
and other customer information, which is made available by the Auditing
Party to the Audited Party under this Agreement. Any audit conducted under
this Section 22.13 shall be conducted in accordance with Section 23,
"Audits and Inspections". Any information disclosed by the Audited Party to
the Auditing Party or the Auditing Party's employees, Agents or
contractors, in an audit conducted under this Section 22.13 shall be
considered to be Confidential Information under this Section 22.
22.14 To the extent permitted by Applicable Law, each Party ("Auditing
Party") shall have the right to monitor the access of the other Party
("Audited Party") to CPNI and other customer information which is made
available by the Auditing Party to the Audited Party under this Agreement,
to ascertain whether the Audited Party is complying with the requirements
of Applicable Law and this Agreement with regard to the Audited Party's
access to, and use and disclosure of, such CPNI and other customer
information. To the extent permitted by Applicable Law, the foregoing right
shall include, but not be limited to, the right to electronically monitor
the Audited Party's access to and use of CPNI and other customer
information which is made available by the Auditing Party to the Audited
Party under this Agreement through electronic interfaces or gateways, to
ascertain whether the Audited Party is complying with the requirements of
Applicable Law and this Agreement with regard to the Audited Party's access
to, and use and disclosure of, such CPNI and other customer information.
22.15 Nothing herein shall be construed as limiting the rights of either
Party with respect to its own subscriber information under any Applicable
Law, including without limitation Section 222 of the Act.
Section 23. Audits and Examinations
23.1 As applicable consistent with the provision of the relevant services
or functions by a Party under this Agreement, each Party may audit the
other Party's books, records and documents for the purpose of evaluating
the accuracy of the other Party's bills and performance reports rendered
under this Agreement. Such audits may be performed no more than a total
of four (4) times in a calendar year nor more often than once every nine
(9) months for a specific subject matter area; provided, that particular
subject matter audits may be conducted more frequently (but no more
frequently than once in each calendar quarter) if the immediately prior
audit for such area found previously uncorrected net inaccuracies or
errors in billing or performance reporting in favor of the audited Party
having an aggregate value of at least five percent (5%) of the amounts
payable by the auditing Party, or statistics reportable by the audited
Party, relating to services provided by the audited Party during the
period covered by the audit.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-21
21
<PAGE>
July 8, 1997 PART A
23.2 In addition to the audits described in Section 23.1, each Party may
audit the other Party's books, records and documents for the purpose of
evaluating compliance with CPNI where the audited Party has access to CPNI
in the custody of the auditing Party pursuant to this Agreement. Such CPNI
audits must be performed in a minimally disruptive fashion, and an audited
Party may bring objections to the Commission, if the audits are
unnecessarily intrusive and the Parties cannot resolve their disputes. Such
CPNI audits may not be performed more frequently than annually; provided,
however, that the frequency of CPNI audits may be increased to quarterly if
violations of a Party's CPNI obligations exceeds five percent (5%)of the
audit sample.
23.3 The auditing Party may employ other persons or firms for this purpose.
Such audit shall take place at a time and place agreed on by the Parties;
provided, that the auditing Party may require that the audit commence no
later than sixty (60) days after the auditing Party has given notice of the
audit to the other Party.
23.4 The audited Party shall promptly correct any error that is revealed in
a billing audit, including back-billing of any underpayments and making a
refund, in the form of a billing credit, of any over-payments. Such back-
billing and refund shall appear on the audited Party's bill no later than
the bill for the third full billing cycle after the Parties have agreed
upon the accuracy of the audit results.
23.5 Each Party shall cooperate fully in any audits required hereunder,
providing reasonable access to any and all employees, books, records and
documents, reasonably necessary to assess the accuracy of the audited
Party's bills or performance reports, or compliance with CPNI obligations,
as appropriate.
23.6 Audits shall be performed at the auditing Party's expense, provided
that there shall be no charge for reasonable access to the audited Party's
employees, books, records and documents necessary to conduct the audits
provided for hereunder.
23.7 Books, records, documents, and other information, disclosed by the
audited party to the auditing Party or the Auditing Party's employees,
agents or contractors in an audit under this Section 23, shall be deemed
to be Confidential Information under Section 22.
23.8 This Section 23 shall survive expiration or termination of this
Agreement for a period of two (2) years after expiration or termination of
this Agreement.
Section 24. Dispute Resolution Procedures
24.1 In the event the Commission retains continuing jurisdiction to
implement and enforce the terms and conditions of this Agreement, the
Parties agree that any dispute arising out of or relating to this Agreement
that the Parties themselves cannot resolve, may be submitted to the
Commission for resolution. The Parties agree to seek expedited resolution
by the Commission, pursuant to applicable procedures established by the
Commission. During the Commission proceeding, each Party shall continue to
perform
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-22
22
<PAGE>
July 8, 1997 PART A
its obligations under this Agreement; provided, however that neither Party
shall be required to act in any unlawful fashion. This provision shall not
preclude the Parties from seeking relief available in any other forum.
24.2 The Parties acknowledge that the terms of this Agreement were
established pursuant to an order of the Commission. Any and all of the
terms of this Agreement may be altered or abrogated by a successful
challenge to the Agreement (or to the order approving the Agreement) as
permitted by Applicable Law. By signing this Agreement, the Parties do not
waive the right to pursue such a challenge.
Section 25. Bona Fide Request Process for Further Unbundling
25.1 The Parties recognize that, because MCIm plans to maintain a
technologically advanced network, it is likely to seek further unbundling
of Network Elements or the introduction of new Network Elements.
Accordingly, MCIm may request such new unbundled Network Elements or
arrangements from time to time by submitting a request in writing ("Bona
Fide Request" or "BFR"). Bell Atlantic shall promptly consider and analyze
MCIm's submission of a Bona Fide Request that Bell Atlantic provide: (a) a
method of Interconnection or access to a Network Element not otherwise
provided under this Agreement at the time of such Bona Fide Request; (b) a
method of Interconnection or access to a Network Element that is different
in quality to that which Bell Atlantic provides to itself, its Affiliates,
or its subscribers at the time of such request; (c) Collocation at a
location other than a Bell Atlantic Central Office; and (d)such other
arrangement, service, or Network Element for which a Bona Fide Request is
required under this Agreement. Items (a) through (d) above may be referred
to individually as a "BFR Item." The Bona Fide Request process set forth
herein does not apply to those services requested pursuant to Report &
Order and Notice of Proposed Rulemaking 91-141 (rel. October 19, 1992),
Paragraph 259 and Footnote 603 or subsequent orders.
25.2 A Bona Fide Request shall be submitted in writing and shall contain
information required to perform a preliminary analysis of the requested BFR
Item. Such information will include a technical description of each BFR
Item and reasonable estimates of the number or volume requested, the
location(s)of each BFR Item, and the date(s) each BFR Item is desired. MCIm
shall submit each BFR via United States Postal Service or private courier,
return receipt requested.
25.3 MCIm may cancel a Bona Fide Request at any time, but shall pay Bell
Atlantic's reasonable and demonstrable costs of processing and/or
implementing the Bona Fide Request up to the date of cancellation;
except MCIm shall not be charged for preliminary analysis if costs do not
exceed one hundred dollars ($100). Bell Atlantic shall notify MCIm if
costs will exceed five thousand dollars ($5,000). Bell Atlantic shall
provide MCIm with weekly status reports on the progress of its analysis and
shall include the cost of such status reports in the costs of processing
the BFR.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-23
23
<PAGE>
July 8, 1997 PART A
25.4 Within fifteen (15) business days after its receipt of a Bona Fide
Request, Bell Atlantic shall provide to MCIm a preliminary analysis of the
BFR Item. The preliminary analysis shall respond in one of the following
ways:
25.4.1 confirm that Bell Atlantic will offer the BFR Item and
identify the date (no more than ninety (90) days after the date of
the preliminary analysis) when Bell Atlantic will deliver a firm
price proposal, including service description, pricing and an
estimated schedule for availability ("Bona Fide Request Price
Proposal");
25.4.2 provide a detailed explanation that such BFR Item is not
technically feasible and/or that the BFR Item does not qualify as one
that is required to be provided under the Act;
25.4.3 inform MCIm that Bell Atlantic must do laboratory testing to
determine whether the BFR Item is technically feasible;
25.4.4 inform MCIm that Bell Atlantic must do field testing to
determine whether the BFR Item is technically feasible;
25.4.5 inform MCIm that it is necessary for the Parties to undertake
a joint technical/operational field test in order to determine both
technical feasibility and operational cost impacts of the BFR Item;
or
25.4.6 request face-to-face meetings between technical
representatives of both Parties to further explain the BFR Item. No
later than five (5) business days following such meetings, Bell
Atlantic will provide a preliminary analysis in one of the ways
identified in Sections 25.4.1 through 25.4.5. Both Parties shall make
reasonable efforts to schedule such meetings as expeditiously as
possible.
25.5 Within ten (10) business days after receiving Bell Atlantic's
preliminary analysis from Section 25.4.3, 25.4.4, or 25.4.5, MCIm shall:
25.5.1 in the case of Sections 25.4.3 or 25.4.4, (i) negotiate a
mutually agreeable, reasonably expeditious schedule for Bell
Atlantic's testing, (ii) a mutually agreeable date (no more than
ninety (90) days after the testing has shown the BFR Item is
technically feasible) when Bell Atlantic will deliver a Bona Fide
Request Price Proposal, and (iii) a mutually agreeable arrangement
for sharing the testing costs; or
25.5.2 in the case of Section 25.4.5, (i) negotiate a mutually
agreeable, reasonably expeditious schedule for joint
technical/operational field testing, (ii) a mutually agreeable date
(no more than 90 days after the testing has shown the BFR Item is
technically feasible) when Bell Atlantic will deliver a Bona Fide
Request Price Proposal, and a mutually agreeable arrangement for
sharing the testing costs.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-24
24
<PAGE>
July 8, 1997 PART A
25.6 In handling a Bona Fide Request pursuant to Section 25.4, Bell
Atlantic shall, to the extent possible, utilize information from previously
developed Bona Fide Requests in order to shorten its response times. MCIm
may take advantage of previously canceled BFR work performed by Bell
Atlantic on the same BFR Item or a substantially similar BFR Item, to the
extent applicable.
25.7 Within ten (10) business days after receiving Bell Atlantic's
preliminary analysis from Section 25.4.1, MCIm shall:
25.7.1 accept Bell Atlantic's date to deliver a Bona Fide Request
Price Proposal;
25.7.2 negotiate as expeditiously as possible a different date for
Bell Atlantic to deliver a Bona Fide Request Price Proposal; or
25.7.3 cancel the Bona Fide Request.
25.8 Unless the Parties otherwise agree, a BFR Item shall be priced in
accordance with Section 252(d)(1)of the Act and any applicable FCC or
Commission rules, regulations, or orders. Consistent with Applicable Law,
the price for each BFR Item shall include the reasonable and demonstrable
costs incurred by Bell Atlantic in responding to the BFR, to the extent
that Bell Atlantic has not previously been reimbursed for such costs.
25.9 Within ninety (90) days after its receipt of the Bona Fide Request
Price Proposal, MCIm must either place an order for such BFR Item pursuant
to the Bona Fide Request Price Proposal or, if it believes such Bona Fide
Request Price Proposal is inconsistent with the requirements of the Act,
seek arbitration by the Commission, including the use of any available
expedited procedures. If, within ninety (90)days after its receipt of the
Bona Fide Request Price Proposal, MCIm fails to confirm an order for such
BFR Item or seek arbitration by the Commission, Bell Atlantic may treat
the Bona Fide Request as canceled by MCIm. If within ninety (90) days after
issuance of a Commission order finding that a Bona Fide Request Price
Proposal is consistent with the requirements of the Act, MCIm fails to
place an order for such BFR Item, Bell Atlantic may treat the Bona Fide
Request as canceled by MCIm.
25.10 If a Party to a Bona Fide Request believes that the other Party is
not requesting, or negotiating, or processing the Bona Fide Request in
good faith, or disputes a determination, or price or cost quote, or is
failing to act in accordance with Section 251 of the Act, such Party may
seek mediation or arbitration by the Commission, including the use of any
available expedited procedures, after giving the other Party written notice
at least ten (10) days in advance.
Section 26. Branding
26.1 In all cases in which a Party has control over handling of services
provided to customers of the other Party using services procured under this
Agreement, the Party so
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-25
25
<PAGE>
July 8, 1997 PART A
handling such services shall brand them at the points of subscriber contact
as set forth in Attachment VIII.
26.2 When Bell Atlantic technicians (including Bell Atlantic contractor
technicians) have contact with a customer during a premise visit on behalf of
MCIm, the Bell Atlantic technicians shall identify themselves as Bell
Atlantic employees (or Bell Atlantic contractor employees) performing
services on behalf of MCIm. When a Bell Atlantic technician leaves a status
card during a premise visit on behalf of MCIm, the card will be a standard
card used for other local service providers'customers, will be in
substantially the form set forth in Exhibit A of this Part A, and will
include the name and telephone number of each local service provider that
elects to be listed on the card and agrees to compensate Bell Atlantic for
that provider's share of Bell Atlantic's cost of printing and distributing
the card. The Bell Atlantic technicians shall not leave any promotional or
marketing literature for or otherwise market Bell Atlantic Telecommunications
Services to the MCIm customer during a premise visit on behalf of MCIm, but
may provide a telephone number for Bell Atlantic's customer service or sales
department, in response to customer query about Bell Atlantic services.
26.3 This Section 26 shall not confer on either Party any rights to the
service marks, trademarks and trade names owned by or used in connection with
services by the either Party or its Affiliates, except as expressly permitted
by this Section 26.
Section 27. Taxes
27.1 With respect to any purchase of services under this Agreement, if any
Federal, state or local government tax, fee, duty, surcharge (including, but
not limited to, any 911, telecommunications relay service, or universal
service fund surcharge), or other tax-like charge (a "Tax") is required or
permitted by Applicable Law to be collected from a Purchasing Party by the
Providing Party, then: (i) the Providing Party shall bill the Purchasing
Party for such Tax; (ii) the Purchasing Party shall timely remit such Tax to
the Providing Party; and (iii) the Providing Party shall remit such collected
Tax to the applicable taxing authority.
27.2 With respect to any purchase of services under this Agreement, if any
Tax is imposed by Applicable Law on the receipts of the Providing Party,
which Applicable Law permits the Providing Party to exclude certain receipts
received from sales of services for resale by the Purchasing Party, such
exclusion being based solely on the fact that the Purchasing Party is also
subject to a tax based upon receipts ("Receipts Tax"), then the Purchasing
Party (i) shall provide the Providing Party with notice in writing in
accordance with Section 27.7 of its intent to pay the Receipts Tax, and (ii)
shall timely pay the Receipts Tax to the applicable taxing authority.
27.3 With respect to any purchase of services under this Agreement, that are
resold by the Purchasing Party to a subscriber of the Purchasing Party, if
any Tax is imposed by Applicable Law on the subscriber of the Purchasing
Party in connection with its purchase
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-26
26
<PAGE>
July 8, 1997 PART A
of the resold Offered Services which the Purchasing Party is required to
impose and/or collect from the subscriber, then the Purchasing Party
(i) shall impose and/or collect such Tax from the subscriber, and (ii)shall
timely remit such Tax to the applicable taxing authority.
27.3.1 If the Providing Party has not received an exemption
certificate from the Purchasing Party and fails to collect any Tax as
required by Section 27.1, then, as between the Providing Party and the
Purchasing Party, (i) the Purchasing Party shall remain liable for
such uncollected Tax, and (ii) the Providing Party shall be liable for
any interest and/or penalty assessed on the uncollected Tax by the
applicable taxing authority.
27.3.2 If the Providing Party properly bills the Purchasing Party for
any Tax but the Purchasing Party fails to remit the Tax to the
Providing Party as required by Section 27.1, then, as between the
Providing Party and the Purchasing Party, the Purchasing Party shall
be liable for such uncollected Tax and any interest and/or penalty
assessed on the uncollected Tax by the applicable taxing authority.
The Providing Party shall give timely notice to the Purchasing Party
if any proposed assessment of Taxes, interest or penalties by the
applicable taxing authority so as to afford the Purchasing Party an
opportunity to cure any defect or inadequacy with its exemption
certificate before assessment of any additional Taxes, interest or
penalties is made by the taxing authority.
27.3.3 If the Providing Party does not collect a Tax because the
Purchasing Party has provided the Providing Party with an exemption
certificate which is later found to be inadequate by the applicable
taxing authority, then, as between the Providing Party and the
Purchasing Party, the Purchasing Party shall be liable for such
uncollected Tax and any interest and/or penalty assessed on the
uncollected Tax by the applicable taxing authority.
27.3.4 Except as provided in Section 27.3.5, if the Purchasing Party
fails to pay the Receipts Tax as required by Section 27.2, then, as
between the Providing Party and the Purchasing Party, (i) the
Providing Party shall be liable for any Tax imposed on the Providing
Party's receipts, and (b) the Purchasing Party shall be liable for any
Tax imposed on the Purchasing Party's receipts and any interest and/or
penalty assessed by the applicable taxing authority on either the
Purchasing Party or the Providing Party with respect to the Tax on the
Providing Party's receipts.
27.3.5 If any discount or portion of a discount in price provided to
the Purchasing Party under this Agreement (including, but not limited
to, the discount provided for in Attachment I) represents Tax savings
to the Providing Party which it was assumed the Providing Party would
receive, because it was anticipated that receipts from sales of
services (that would otherwise be subject to a Tax on such receipts)
could be excluded from such Tax under Applicable Law, because the
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT -PENNSYLVANIA PART A-27
<PAGE>
July 8, 1997 PART A
services would be sold to a Telecommunications Services provider, and
the Providing Party is, in fact, required by Applicable Law to pay such
Tax on receipts from sales of services to the Purchasing Party, then,
as between the Providing Party and the Purchasing Party, the Purchasing
Party shall be liable for any such Tax and any interest and/or penalty
assessed by the applicable taxing authority on either the Purchasing
Party or the Providing Party with respect to the Tax on the Providing
Party's receipts.
27.3.6 With respect to any Tax imposed on subscribers of the Purchasing
Party that the Purchasing Party is required to collect, as between the
Providing Party and the Purchasing Party, the Purchasing Party shall
remain liable for such Tax and any interest and/or penalty assessed on
such Tax by the applicable taxing authority.
27.4 If either Party is audited by a taxing authority, the other Party
agrees to reasonably cooperate with the Party being audited in order to
respond to any audit inquiries in a proper and timely manner so that the
audit and/or any resulting controversy may be resolved expeditiously.
27.5 If Applicable Law clearly exempts a purchase of services under this
Agreement from a Tax, and if such Applicable Law also provides an exemption
procedure, such as an exemption certificate requirement, then, if the
Purchasing Party complies with such procedure, the Providing Party shall not
collect such Tax during the effective period of the exemption. Such
exemption shall be effective upon receipt of the exemption certificate or
affidavit in accordance with Section 27.7.
27.6 If Applicable Law appears to exempt a purchase of services under this
Agreement from a Tax, but does not also provide an exemption procedure, then
the Providing Party shall not collect such Tax if the Purchasing Party
(i) furnishes the Providing Party with a letter signed by an officer of the
Purchasing Party requesting an exemption and citing the provision in the
Applicable Law which appears to allow such exemption, and (ii) supplies the
Providing Party with an indemnification agreement, reasonably acceptable to
the Providing Party, which holds the Providing Party harmless on an after-
tax basis with respect to forbearing to collect such Tax.
27.7 All notices, affidavits, exemption certificates or other communications
required or permitted to be given by either Party to the other under this
Section 27, shall be made in writing and shall be delivered personally or
sent by prepaid overnight express service, and sent to the addresses stated
in Section 14 and to the following:
To Bell Atlantic: Tax Administration
Bell Atlantic Network Services, Inc.
1717 Arch Street, 30th Floor
Philadelphia, PA 19103
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-28
<PAGE>
July 8, 1997 PART A
To MCIm: MCI Carrier Group
MCI Telecommunications Corporation
1133 19th Street, NW
Washington, DC 20036
Either Party may from time-to-time designate another address or addressee
by giving notice in accordance with the terms of this Section 27.7. Any
notice or other communication shall be deemed to be given when received.
Section 28. Responsibility for Environmental Contamination
28.1 MCIm shall in no event be liable to Bell Atlantic for any costs
whatsoever resulting from a violation of a federal, state or local
environmental law by Bell Atlantic, its contractors or agents arising out
of this Agreement (a "Bell Atlantic Environmental Violation"). Bell
Atlantic shall, at MCIm's request, indemnify, defend, and hold harmless
MCIm, each of its officers, directors and employees from and against any
losses, damages, claims, demands, suits, liabilities, fines, penalties and
expenses (including reasonable attorneys fees) that are caused by a Bell
Atlantic Environmental Violation.
28.2 Bell Atlantic shall in no event be liable to MCIm for any costs
whatsoever resulting from a violation of a federal, state or local
environmental law by MCIm, its contractors or agents arising out of this
Agreement (an "MCIm Environmental Violation"). MCIm shall, at Bell
Atlantic's request, indemnify, defend, and hold harmless Bell Atlantic,
each of its officers, directors and employees from and against any losses,
damages, claims, demands, suits, liabilities, fines, penalties and expenses
(including reasonable attorneys fees)that are caused by an MCIm
Environmental Violation.
28.3 In the event any suspect materials within Bell Atlantic-owned,
operated or leased facilities are identified to be asbestos-containing,
MCIm will ensure that to the extent any activities which it undertakes in
the facility disturb such suspect materials, such MCIm activities will be
in accordance with applicable local, state and federal environmental and
health and safety statutes and regulations. Except for abatement activities
undertaken by MCIm or equipment placement activities that result in the
generation or placement of asbestos containing material, MCIm shall not
have any responsibility for managing, nor be the owner of, not have any
liability for, or in connection with, any asbestos containing material at
Bell Atlantic-owned, operated or leased facilities. Bell Atlantic agrees to
immediately notify MCIm if Bell Atlantic undertakes any asbestos control or
asbestos abatement activities that potentially could affect MCIm equipment
or operations, including, but not limited to, contamination of equipment.
Section 29. Facilities
29.1 A providing Party or its suppliers shall retain all right, title and
interest in, and ownership of, all facilities, equipment, software, and
wiring, used to provide the
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-29
<PAGE>
July 8, 1997 PART A
providing Party's services. During the period in which services are
provided, the providing Party shall have access at all reasonable times to
the purchasing Party's and the purchasing Party's customers' locations for
the purpose of installing, maintaining, repairing, and inspecting all
facilities, equipment, software, and wiring, used to provide the services.
At the conclusion of the period in which services are provided, the
providing Party shall have access at the purchasing Party's and the
purchasing Party's customers' locations at all reasonable times to remove
all facilities, equipment, software, and wiring used to provide the
services. The purchasing Party shall, at the purchasing Party's expense,
obtain any rights and authorizations necessary for such access.
29.2 Except as otherwise stated in this Agreement or agreed to in writing
by a providing Party, a providing Party shall not be responsible for the
installation, maintenance, repair or inspection, of facilities, equipment,
software, or wiring furnished by the purchasing Party or the purchasing
Party's customers for use with the providing Party's services.
Section 30. Option to Obtain Services Under Other Agreements
30.1 In accordance with the requirements of 47 U.S.C. (S) 252(i), each
Party shall, upon written request by the other Party, make available to the
requesting Party any interconnection, service, or network element provided
under an agreement with a third party, and which is approved by the
Commission pursuant to 47 U.S.C. (S) 252, upon the same terms and
conditions (including prices) provided in the agreement with the third
party. This Agreement shall thereafter be amended to incorporate the terms
and conditions (including prices) from the third party agreement applicable
to the interconnection, service, or network element that the requesting
Party has elected to purchase pursuant to the terms and conditions of the
third party agreement. The amended rates, terms and conditions from the
third party agreement shall be effective upon: (i) amendment by the
Parties, or (ii) sixty (60) days after the date of written request,
whichever is earlier.
30.2 To the extent the exercise of the foregoing option requires a
rearrangement of facilities by the providing Party, the requesting Party
shall be liable for the non-recurring charges associated therewith, as well
as for any termination charges, if any, associated with the termination of
existing facilities or services.
Section 31. Other Services
31.1 This Agreement applies only to "services" as defined in this
Agreement. To the extent that services subscribed to under this Agreement
by a purchasing Party are interconnected to or used with other services,
facilities, equipment, software, or wiring, provided by the providing Party
or by other persons, such other services, facilities, equipment, software,
or wiring, shall not be construed to be provided under this Agreement. Any
providing Party services, facilities, equipment, software, or wiring, to be
used by the purchasing Party which are not subscribed to by the purchasing
Party
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-30
<PAGE>
July 8, 1997 PART A
under this Agreement must be subscribed to by the purchasing Party separately,
pursuant to other written agreements (including, but not limited to, applicable
providing Party Tariffs).
31.2 Without in any way limiting Section 31.1, the Parties agree that this
Agreement does not apply to the following Bell Atlantic services and
products: Bell Atlantic Answer Call, Bell Atlantic Answer Call Plus, Bell
Atlantic Basic Mailbox, Bell Atlantic Voice Mail, and other Bell Atlantic
voice mail and voice messaging services; Bell Atlantic Optional Wire
Maintenance Plan, Bell Atlantic Guardian Enhanced Maintenance Service, Bell
Atlantic Sentry I Enhanced Maintenance Service, Bell Atlantic Sentry II
Enhanced Maintenance Service, Bell Atlantic Sentry III Enhanced Maintenance
Service, and other inside wire maintenance services; customer premises
equipment; Telephone Directory advertisements (except as stated in
Attachment VIII); and any service that incorporates the payphone station
equipment.
31.3 Without in any way limiting Section 31.1 or Section 31.2, the
Parties also agree that this Agreement does not apply to the installation,
maintenance, repair, inspection, or use of any facilities, equipment,
software, or wiring, located on the purchasing Party's side of the Network
Rate Demarcation Point applicable to the purchasing Party and does not
grant to the purchasing Party a right to installation, maintenance, repair,
inspection, or use, of any such facilities, equipment, software, or wiring.
Installation, maintenance, repair, inspection, or use of facilities,
equipment, software, or wiring, located on the purchasing Party's side of
the Network Rate Demarcation Point applicable to the purchasing Party must
be contracted for by the purchasing Party separately, pursuant to other
written agreements, at rates stated in such other written agreements.
Section 32. Provision and Use of Services
32.1 A Party may fulfill its obligations under this Agreement itself or may
cause an Affiliate of the Party to take the action necessary to fulfill the
Party's obligations; provided that a Party's use of an Affiliate to perform
this Agreement shall not release the Party from any liability or duty to
fulfill its obligations under this Agreement.
32.2 Except as otherwise expressly stated in this Agreement, each Party, at
its own expense, shall be responsible for obtaining from governmental
authorities, property owners, other Telecommunications Carriers, and any
other persons or entities, all rights and privileges (including, but not
limited to, Rights of Way, space and power), which are necessary for the
Party to provide its services pursuant to this Agreement.
32.3 Except as otherwise provided in this Agreement, this Agreement does
not prevent a purchasing Party from using the services provided by a
providing Party pursuant to this Agreement in connection with other
technically compatible services provided by the providing Party pursuant to
this Agreement or with any services provided by the purchasing Party or a
third party, provided, however, that unless otherwise provided herein,
interconnection services, call transport and termination services, and
unbundled
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-31
<PAGE>
July 8, 1997 PART A
Network Elements shall be available under the terms and conditions (including
prices) set forth in this Agreement and shall be used by the purchasing Party
solely for purposes consistent with obligations set forth in the Act and any
rules, regulations or orders thereunder.
Section 33. Selection of IntraLATA Telecommunications Service Provider
33.1 The Parties agree to apply the principles and procedures set forth in
Sections 64.1100 and 64.1150 of the FCC Rules, 47 C.F.R. (S)(S) 64.1100 and
64.1150, to the process for end user selection of an IntraLATA
Telecommunications Service provider; provided that if the FCC or the
Commission adopts rules governing the process for end user selection of an
IntraLATA Telecommunications Service provider, the Parties shall apply such
rules rather than the principles and procedures set forth in (S)(S) 64.1100
and 64.1150.
33.2 In the event a Party ("Requesting Party")which requests the other
Party to change an end user's Telecommunications Service (including, but
not limited to, an end user's selection of an IntraLATA Telecommunications
Service provider): (a) fails to provide documentary evidence of the end
user's IntraLATA Telecommunications Service provider selection upon
request; or (b) requests changes in the end user's Telecommunications
Service without having obtained authorization for such change from the end
user pursuant to the principles and procedures set forth in Sections
64.1100 and 64.1150 or other applicable FCC or Commission rules, the
Requesting Party shall indemnify, defend and hold harmless the other Party
for any resulting Claims. In addition, the Requesting Party shall be liable
to the other Party for all charges that would be applicable to the end user
for the initial change in the end user's Telecommunications Service and any
charges for restoring the end user's Telecommunications Service to its end
user authorized condition, including to the appropriate IntraLATA
Telecommunications Service provider.
33.3 A Providing Party shall not require the Purchasing Party to produce a
letter of authorization, disconnect order, or other writing, from the
Purchasing Party's subscriber as a pre-condition to processing an Order
from the Purchasing Party.
Section 34. Service Standards
34.1 Bell Atlantic shall provide service to MCIm at a level of performance
that Bell Atlantic is required by Applicable Law (including 47 U.S.C. (S)
251)to meet in providing service to MCIm.
34.2 Bell Atlantic shall offer premium service (services provided at a
higher level than that required by Section 34.1) to MCIm, if MCIm requests
premium service in accordance with Section 25 and MCIm compensates Bell
Atlantic for the incremental cost of providing such premium service.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-32
<PAGE>
July 8, 1997 PART A
34.3 Upon MCIm's request, Bell Atlantic shall provide to MCIm reports on
all material measures of service Parity. MCIm may request a report on all
measures that are reasonably related to establishing the Parity level and
whether MCIm is receiving services at Parity. Such reports shall indicate
for each material measure the service and performance level provided by
Bell Atlantic to itself, its Affiliates, MCIm, and other CLECs. The reports
required by this Section 34 are identified in Attachment X of this
Agreement.
34.4 To the extent Bell Atlantic through its Tariffs provides credits for
substandard performance, Bell Atlantic shall provide MCIm such credits for
substandard performance of services provided under this Agreement.
34.5 Pursuant to Section 23 of this Part A, MCIm shall have the right, at
its expense, to conduct reasonable audits or other verifications of
information and reports provided by Bell Atlantic under this Section 34.
Section 35. Subcontracting
35.1 If any obligation under this Agreement is performed through a
subcontractor, the subcontracting Party shall remain fully responsible for
the performance of this Agreement in accordance with its terms, including
any obligations it performs through the subcontractor. The subcontracting
Party shall be solely responsible for payments due its subcontractors. No
subcontractor shall be deemed a third party beneficiary for any purposes
under this Agreement.
Section 36. Amendments and Modifications
36.1 No provision of this Agreement shall be deemed waived, amended or
modified by either Party unless such a waiver, amendment or modification is
in writing, dated, and signed by both Parties.
Section 37. Severability
37.1 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), and the Agreement shall be construed
as if it did not contain the invalid or unenforceable provision or
provisions, and the rights and obligations of each Party construed and
enforced accordingly.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-33
<PAGE>
July 8, 1997 PART A
Section 38. Headings Not Controlling
38.1 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.
Section 39. Entire Agreement
39.1 This Agreement constitutes the entire agreement between the Parties on
the subject matter hereof, and supersedes any prior or contemporaneous
agreement, understanding, or representation on the subject matter hereof.
Except as otherwise provided in this Agreement, the terms in this Agreement
may not be waived or modified except by a written document which is signed
by the Parties.
Section 40. Counterparts
40.1 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.
Section 41. Successors and Assigns
41.1 This Agreement shall be binding upon, and inure to the benefit of,
the Parties hereto and their respective successors and permitted assigns.
Section 42. Good Faith Performance
42.1 In the performance of their obligations under this Agreement, the
Parties shall cooperate fully and act in good faith and consistently with
the intent of the Act. 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 action shall
not be unreasonably delayed, withheld or conditioned.
Section 43. Joint Work Product
43.1 This Agreement is the joint work product of the representatives of the
Parties. For convenience, this Agreement has been drafted in final form by
one of the Parties. Accordingly, in the event of ambiguities, no inferences
shall be drawn against either Party solely on the basis of authorship of
this Agreement.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-34
<PAGE>
July 8, 1997 PART A
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed by its duly authorized representatives.
MCImetro Access Transmission Bell Atlantic Pennsylvania, Inc.
Services, Inc.
By: /s/ Dennis J. Kerr By:
-------------------------- -----------------------------
Name: Dennis J. Kerr Name:
------------------------ ---------------------------
Title: Vice President Title:
----------------------- --------------------------
Date: 7/7/97 Date:
------------------------ --------------------------
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA PART A-35
<PAGE>
July 8, 1997 PART A
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed by its duly authorized representatives.
MCImetro Access Transmission Bell Atlantic-Pennsylvania, Inc.
Services, Inc.
Daniel J. Whelan
By:___________________________ By:_____________________________
Name: Name: Daniel J. Whelan
_________________________ ___________________________
Title: Title: President and CEO
________________________ __________________________
Date: Date: 7/8/97
_________________________ ___________________________
MCIm-BELL ATLANTIC INTERCONNECTION AGREENENT - PENNSYLVANIA PART A-35
<PAGE>
July 8, 1997 ATTACHMENT II
TABLE OF CONTENTS
-----------------
Attachment II
LOCAL RESALE
Section 1. Telecommunications Services Provided for Resale II-1
Section 2. General Terms and Conditions for Resale II-1
Section 3. Service Functions II-4
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA II-i
<PAGE>
July 8, 1997 ATTACHMENT II
ATTACHMENT II
LOCAL RESALE
Section 1. Telecommunications Services Provided for Resale
1.1 In accordance with and subject to the requirements of Applicable Law, Bell
Atlantic shall make available to MCIm for resale any Telecommunications
Service that Bell Atlantic currently provides or may offer hereafter,
including the service functions described in Section 3 below. Such
Telecommunications Services and service functions are collectively referred to
as "Local Resale."
1.2 To the extent that this Attachment describes services which Bell Atlantic
shall make available to MCIm for resale pursuant to this Agreement, this list
of services is neither all inclusive nor exclusive. All Telecommunications
Services which are to be offered for resale are subject to the terms herein.
1.3 Bell Atlantic shall make all of its Telecommunications Services available
for resale to MCIm on terms and conditions that are reasonable and Non-
Discriminatory.
1.4 Bell Atlantic will provide services to MCIm for resale that are equal in
quality, subject to the same conditions, and provided within the same
provisioning time intervals that Bell Atlantic provides itself, including end
users. To the extent applicable, Bell Atlantic shall also conform to the
specific requirements of Attachment VIII.
1.5 The specific business process requirements and systems interface
requirements are set forth in Attachment VIII.
1.6 Notwithstanding any other provision of this Attachment II, Bell Atlantic
shall be entitled to change its Telecommunications Services offerings, subject
to the notice provisions of Attachment VIII, Section 1.
1.7 MCIm acknowledges that it has a duty under Section 25 l(b)(1)of the Act
not to prohibit, and not to impose unreasonable and discriminatory conditions
or limitations on the resale of its Telecommunications Services. MCIm will
develop its services with the knowledge that when they are available, Bell
Atlantic may request negotiations with MCIm for the resale of such services.
MCIm will negotiate in good faith the terms and conditions necessary for Bell
Atlantic to purchase such services for resale from MCIm.
Section 2. General Terms and Conditions for Resale
2.1 Pricing. The prices regarding Local Resale are set forth in Attachment I
of this Agreement.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA II-1
<PAGE>
July 8, 1997 ATTACHMENT II
2.2 Restrictions on Resale
2.2.1 Local Resale services may be purchased by MCIm under this
Agreement solely for the purpose of resale by MCIm. Local services to
be purchased for other purposes (including, but not limited to, MCIm's
own use) must be purchased pursuant to separate written agreements,
including, but not limited to, applicable Tariffs of Bell Atlantic.
MCIm may purchase Local Resale services under this Agreement for resale
to its Affiliates if MCIm resells such services as a Telecommunications
Carrier pursuant to terms and conditions that comply with all
applicable Commission rules, including non-discrimination rules.
2.2.2 MCIm shall not resell Bell Atlantic's residential Local Resale
services to customers who are ineligible to subscribe to such Local
Resale services from Bell Atlantic.
2.2.3 MCIm shall not resell Lifeline or any other means-tested service
offerings to customers not eligible to subscribe to such service
offerings from Bell Atlantic.
2.2.4 MCIm shall not resell grandfathered Local Resale services to
customers who are ineligible to subscribe to such Local Resale services
from Bell Atlantic.
2.2.5 The Parties agree to negotiate the applicability of any category-
to-category restriction on the resale of Bell Atlantic's Local Resale
services that may be offered by Bell Atlantic in the future. If the
Parties are unable to reach agreement, the Parties will submit the
dispute to the Commission under the dispute resolution procedures of
Part A, Section 24 (Dispute Resolution Procedures), and Bell Atlantic
shall bear the burden of proving that the category-to-category
restriction is reasonable and nondiscriminatory.
2.3 Requirements for Specific Services
2.3.1 CENTREX Requirements
2.3.1.l MCIm may purchase CENTREX features (including system
management, call forwarding, digital facility termination and
ARS), in accordance with applicable Tariffs.
2.3.1.2 All service levels and features of CENTREX service
provided by Bell Atlantic for resale by MCIm shall conform to
Bell Atlantic's prevailing service requirements and be at Parity
with the service and features provided to its end user customers.
2.3.1.3 MCIm may aggregate multiple MCIm subscribers on dedicated
access facilities. Any aggregation of multiple location
subscribers may have the effect of changing the retail CENTREX
service offered under
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA II-2
<PAGE>
July 8, 1997 ATTACHMENT II
applicable Tariff, in which case MCIm must purchase the
appropriate tariffed service or, if such changed service is not
available under Tariff, the Parties shall attempt to negotiate a
separate agreement for such service.
2.3.2 Federal and State Programs
When a Bell Atlantic subscriber eligible for the Voluntary Federal
Subscriber Financial Assistance Program or other similar state
programs, including Life Line and Link-Up services, chooses to obtain
Local Resale from MCIm, MCIm shall be responsible for obtaining the
necessary information for its records regarding such subscriber's
eligibility.
2.3.3 Grandfathered Services. Bell Atlantic shall offer for resale to
MCIm all grandfathered services eligible for resale hereunder. For
purposes of this Agreement, a grandfathered service is a service that
Bell Atlantic offers to continue for existing retail subscribers of
that service, but not to new subscribers.
2.3.4 N11 Service. Bell Atlantic agrees to offer for resale to MCIm any
N11 Telecommunications Service it offers under Tariff.
2.3.5 Contract Service Arrangements, Special Arrangements, and
Promotions. Bell Atlantic shall offer for resale Telecommunications
Services, including but not limited to contract service arrangements,
special arrangements, and promotions, as required by Applicable Law.
2.3.6 Inside Wire Maintenance Service. [RESERVED]
2.3.7 Voice Mail Service
2.3.7.1 [RESERVED]
2.3.7.2 Bell Atlantic shall make available SMDI-E (Station
Message Desk Interface-Enhanced) features where available, or
SMDI (Station Message Desk Interface) features where SMDI-E is
not available. Bell Atlantic shall make available the MWI
(Message Waiting Indicator), stutter dialtone, and message
waiting light feature capabilities. Bell Atlantic shall make
available CF-B/DA (Call Forward on Busy/Don't Answer), CF/B (Call
Forward on Busy), and CF/DA (Call Forward/Don't Answer) feature
capabilities allowing for voice mail services.
2.3.8 Hospitality Service
2.3.8.1 Bell Atlantic shall provide all blocking, screening, and
all other applicable functions available for hospitality (e.g.,
hospitals, hotels and the like) lines, pursuant to Tariff.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA II-3
<PAGE>
July 8, 1997 ATTACHMENT II
2.3.9 Telephone Line Number Calling Cards. Bell Atlantic shall
maintain customer information for MCIm customers who subscribe to
resold Bell Atlantic Local Service residential or business dial tone
lines in Bell Atlantic's Line Information Database ("LIDB")in the
same manner that it maintains information in LIDB on its own similarly
situated end user customers. Bell Atlantic shall update and maintain,
on the same schedule that it uses for its own similarly situated end
user customers, the MCIm customer information in LIDB.
Section 3. Service Functions
3.1 When Bell Atlantic converts one of its subscribers to MCIm's service,
Bell Atlantic shall inform MCIm, to the extent such information is available
through Bell Atlantic's electronic interfaces for CLECs, whether such
subscriber is currently participating in any program of reduced or exempt
charges, including those for the indigent, the handicapped, governmental
bodies and public institutions.
3.2 Each Party will work cooperatively with the other Party with respect to
practices and procedures for handling of law enforcement and service
annoyance calls.
3.3 The Parties will cooperate in the development of an industry standard of
"700" number test lines.
MCIm-BELL ATLANTIC INTERCONNECTION AGREEMENT - PENNSYLVANIA II-4
<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 April 4,
2000, relating to the financial statements and financial statement schedules 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
April 6, 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>
Exhibit 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, 2000, except as to Note 18, which is as of April 4, 2000
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>
Exhibit 99.2
EQUIS OF NEW YORK, INC. /65 EAST 55TH STREET, 8TH FLOOR/NEW YORK, NEW YORK
10022 / 212-328-4200
COMMUNITY NETWORKS / 45-18 COURT SQUARE
PROJECTED COSTS FOR LEASING SPACE / BILLING PERIOD IS JANUARY - DECEMBER
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSUMPTIONS
COMMENCE 1/1/99 DIRECT OPERATING REAL ESTATE TAXES
---------------- -----------------
EXPIRE 12/31/01 BASE YR 1998 BASE YEAR 1998.99
TERM (36 MONTHS) 3 YEARS BS AMT $5.00 BASE AMT $4.00
INCR % 5.00% INCR % 5.00%
DISCOUNT RATE 8.00% INCR BEGINS 1/1/99 INCR BEGINS 6/1/99
FLOOR PART OF 4T Multiple 100% GROSS ESCALATION
RENTABLE SF 7,628 GROSS ESCALATION
LOSS FACTOR 25.00%
USABLE AREA 5.721
ADD ON FACTOR 1.33333%
ELECTRIC
--------
BASE AMT $3.00
INCR % 2.00%
INCR STARTS 1/1/00
- --------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
1 2 3
YEAR ENDING 12/31/99 12/31/00 12/31/01
--------------------------------------------------------------------------------------------
BASE RENT $18.50 $18.50 $18.50
ELECTRIC $3.00 $3.06 $3.12
DIRECT OPERATING $0.25 $0.51 $0.79
REAL ESTATE TAXES $0.12 $0.32 $0.54
============================================================================================
PER SQ FT TOTAL $21.87 $22.40 $22.95
MONTHLY AVERAGE $13,900 $14,236 $14,587
PER ANNUM TOTAL $166,799 $170,829 $175,047
CUMULATIVE TOTAL 166,799 337,628 512,675
- --------------------------------------------------------------------------------------------------------------------
COMMENTS
<CAPTION>
CALENDAR YEAR CASH FLOW
DATE 2/4/1999 PAGE#
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------
$512,675 AGGREGATE RENT
----------
$456,857 AGGREGATE PRESENT VALUE @ 8.00%
COMMENCE ----------
$170,892 AGGREGATE AVERAGE COST P/A
---------
$170,657 AGGREGATE ANNUITY - EQUAL LEVEL PAYMENT @ 8.00%
----------
EXPIRE $22.40 RSF - AVERAGE COST P/A
----------
TERM (36 MONTHS) $22.37 RSF - ANNUITY - EQUAL LEVEL PAYMENT @ 8.00%
----------
$29.87 USF - AVERAGE COST P/A
----------
DISCOUNT RATE $29.83 USF - ANNUITY - EQUAL LEVEL PAYMENT @ 8.00%
----------
FLOOR
RENTABLE SF ----------
$18.50 (A) AVERAGE BASE RENT PRE FREE RENT
LOSS FACTOR ----------
USABLE AREA ----------
ADD ON FACTOR ----------
$18.50 (D) AVG BASE RENT ONLY (A-B-C=D)
----------
----------
$0.58 AMTZD AMT OF 1 MONTHS RENT @ $18.50 PSF @ 8.00%
----------
$0.37 AMTZD AMT OF $1 IN CASH FROM THE LANDLORD @ 8.00%
----------
PRESENT VALUE AND AMORTIZATION IS CALCULATED MONTHLY ASSUMING A
BEGINNING OF MONTH PAYMENT
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------
% OF TTL
TOTALS RENT
- ----------------------------------------------------- ------ ----
$55.50 82.58%
$9.18 13.66%
$1.55 2.31%
$0.98 1.45%
=========================================================================
$67.21 100%
- -----------------------------------------------------------------------------------------------------
</TABLE>
ALTHOUGH ALL INFORMATION FURNISHED REGARDING PROPERTY FOR SALE, RENTAL OR
FINANCING IS FROM SOURCES DEEMED RELIABLE, SUCH INFORMATION HAS NOT BEEN
VERIFIED AND NO EXPRESS REPRESENTATIONS MADE NOR IS ANY TO BE IMPLIED AS TO THE
ACCURACY THEREOF, AND IT IS SUBMITTED SUBJECT TO ERRORS, OMISSIONS, CHANGE OF
PRICE, RENTAL OR OTHER CONDITIONS PRIOR SALE, LEASE OR FINANCING, OR WITHDRAWAL
NOTICE.
<PAGE>
Existing Lease Abstract
Building: 45-18 Court Square - LIC Suite 400
Lease Date: October 20, 1998
Landlord: 45-18 Court Square, LLC (Alan Zaretsky)
Tenant: Community Networks
Premises: Part of the 4/th/ Floor
Rentable Area: 7,628 RSF
Lease Term: 3 Years
Lease Commencement: January 1, 1999
Lease Expiration: December 31, 2001
Rent Commencement: Upon Possession
Base Rent: $141,118 per annum or $18.50 pRSF
Electricity: Submetered
Real Estate Taxes: Tenant shall pay proportionate share of a direct pass-
through of actual real estate tax increases above a
1998 Fiscal Base Year
Operating Expense: Tenant shall pay proportionate share of a direct pass-
through of actual operating increases above a 1998 Base
Year
Tenant's Proportionate
Share (for above): 6%
Security Deposit: $23,519.66
Use: Call Center
Sublet/Assignment: Tenant needs prior written consent from Landlord which
maybe withheld for any reason or no reason whatsoever
Holdover: Minimum Annual Rent will be increased by an amount
equal to one-half and Tenancy will be on a month-to-
month basis
