<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000.
REGISTRATION NO. 333 -
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LEXENT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7385 13-3990223
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
THREE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 981-0700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEVIN M. O'KANE
VICE CHAIRMAN AND CHIEF OPERATING OFFICER
LEXENT INC.
THREE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 981-0700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JOSHUA A. LEUCHTENBURG, ESQ.
VINCENT PAGANO, JR., ESQ. REBOUL, MACMURRAY, HEWITT,
SIMPSON THACHER & BARTLETT MAYNARD & KRISTOL
425 LEXINGTON AVENUE 45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10111
(212) 455-2000 (212) 841-5700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE PRICE(2)
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<S> <C> <C> <C>
Common stock, $.001 par value.......... shares $ $86,250,000
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<CAPTION>
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TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
- --------------------------------------- ----------------------
<S> <C>
Common stock, $.001 par value.......... $22,770
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</TABLE>
(1) Includes shares of common stock that may be sold pursuant to the
Underwriters' over-allotment option. See "Underwriting."
(2) Estimated solely for purposes of calculating the amount of the registration
fee paid pursuant to Rule 457(a) under the Securities Act of 1933, as
amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 18, 2000
Shares
LEXENT INC.
[LOGO]
Common Stock
-----------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our common stock
on the Nasdaq National Market under the symbol "LXNT."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
7.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS LEXENT INC.
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
RAYMOND JAMES & ASSOCIATES, INC.
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 7
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 15
USE OF PROCEEDS....................... 16
DIVIDEND POLICY....................... 16
CAPITALIZATION........................ 17
DILUTION.............................. 18
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
BUSINESS.............................. 28
MANAGEMENT............................ 35
</TABLE>
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PAGE
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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 43
PRINCIPAL STOCKHOLDERS................ 45
DESCRIPTION OF CAPITAL STOCK.......... 47
SHARES ELIGIBLE FOR FUTURE SALE....... 50
UNDERWRITING.......................... 52
NOTICE TO CANADIAN RESIDENTS.......... 54
LEGAL MATTERS......................... 55
EXPERTS............................... 55
WHERE YOU CAN FIND ADDITIONAL
INFORMATION ABOUT US................ 55
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
-----------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
"Lexent Inc.," "Lexent" and the Lexent logo are our trademarks. All other
trademarks or service marks appearing in this prospectus are trademarks or
service marks of the respective companies that own them.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000, 25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING,
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
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<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in this offering. You should read the entire prospectus carefully.
Unless otherwise indicated, all references to "Lexent," "we," "us" and "our"
refer to Lexent Inc., its predecessor and its subsidiaries.
LEXENT INC.
Lexent Inc. is a leading provider of outsourced local telecommunications
network services for established and emerging communications companies,
including competitive local exchange carriers, Internet service providers and
carriers' carriers. Our principal focus is to provide the expertise and
resources our customers need to build and connect their networks to other local
and long distance carriers and to individual end users. Our complete, local
solution allows our customers to outsource all or a portion of the design,
deployment, upgrading and maintenance of their networks. To ensure the
reliability of these networks, we provide services 24 hours a day, seven days a
week. Our largest customers include AT&T, Level 3 Communications, MCI Worldcom,
Metromedia Fiber Network, Network Access Solutions, Network Plus, Nextlink
Communications, Teligent and Winstar Communications. Our revenues have grown to
$150.9 million in 1999 from $53.7 million in 1997, representing a compound
annual growth rate of 68%.
In our customers' competitive environment where speed to market is key, our
outsourced solution provides the mission-critical, often scarce resources that
our customers need. We have the technical expertise, local knowledge and highly
skilled workforce that enable us to design, deploy and upgrade local wireless
and wireline networks more quickly and efficiently than many of our customers
could themselves. We currently employ over 755 network engineers and
technicians. Our senior management team averages 15 years of telecommunications
industry experience. We are technology and vendor independent, enabling us to
install, upgrade and maintain equipment from any major telecommunications
equipment manufacturer. Over the past three years, we have successfully expanded
our operations from the New York City metropolitan area to other cities,
including Baltimore, Boston, Newark, Philadelphia, Stamford and Washington, D.C.
We plan to continue expanding with our customers into other metropolitan areas.
We believe that we have a substantial business opportunity for the
following reasons:
- The telecommunications industry is growing rapidly and our customers are
making large capital investments to build and expand their networks.
- The increasing demand for broadband Internet access, wireless
communications and enhanced data and voice services is fueling this
growth.
- Broadband capacity is inadequate in the last mile.
- Our customers increasingly outsource the services we provide so that they
can focus on their core businesses.
We believe our extensive experience and knowledge of local telecommunications
networks will encourage our existing and new customers to use our services as
they expand their businesses in existing and new markets. In 1999, we provided
services to 74 telecommunications companies, more than double the 36 we serviced
in 1998.
We deliver integrated services to our customers, enabling them to use
Lexent instead of multiple vendors. Our services are designed to improve our
customers' competitive position through efficient design, deployment, upgrading
and maintenance of their networks. We develop long term relationships with our
customers by providing responsive, reliable and high quality service, which we
believe results in repeat
3
<PAGE> 7
revenues from our customers. In 1999, over 80% of our revenues were generated
from customers who used our services in 1998. Our outsourced solution includes
the following services:
Design, Engineering and Program Management Services. We design and
engineer entire local telecommunications networks. This includes fiber and
fixed wireless backbones and interconnections to other carriers that enable
our customers to connect end users to their networks. We coordinate the
entire process, from planning, designing, permitting, accessing buildings
and rights-of-way, to supervising the installation of a customer's network.
Network Deployment Services. We deploy local telecommunications
networks and Internet infrastructure, including fiber optic backbones,
local SONET fiber rings, fixed wireless and digital subscriber line
systems. We deploy and test equipment inside central office facilities and
end user locations. For our fiber optic network customers, we install and
test fiber optic cable over the last mile, from fiber backbone to end
users. For our fixed wireless customers, we install line-of-sight antennas,
radios and equipment connecting the radios to wireline networks. For
digital subscriber line customers, we install DSL equipment inside
incumbent local exchange carrier co-location facilities.
Network Upgrade and Maintenance Services. We provide ongoing services
to our customers, which include daily maintenance, upgrading and adding
equipment, installing new access lines, testing fiber splices and
telecommunications equipment and laying additional fiber to increase
network capacity. Our maintenance and emergency restoration services are
provided 24 hours a day, seven days a week.
Our objective is to be the leading provider of outsourced local
telecommunications network services in major metropolitan markets for
competitive local exchange carriers, or CLECs, Internet service providers and
carriers' carriers. The key elements of our strategy are to:
- Exploit the rapidly growing demand for broadband Internet access and
wireless communications;
- Grow our base of leading customers by focusing on customer satisfaction
and increasing their speed to market;
- Pursue client-driven geographic expansion in major metropolitan areas;
- Create new revenue streams by expanding our services and pursuing
cross-selling opportunities; and
- Attract, motivate and retain a highly specialized workforce capable of
remaining at the forefront of emerging technologies.
Our principal executive offices are located at Three New York Plaza, New
York, New York 10004. Our telephone number is (212) 981-0700.
4
<PAGE> 8
THE OFFERING
Common stock offered.................. shares
Common stock to be outstanding after
this offering......................... shares
Use of proceeds....................... The net proceeds from this offering
will be used to reduce outstanding
borrowings under our revolving credit
facility, to pay dividends accrued
after December 31, 1998 on the
redeemable convertible preferred
stock to be converted into common
stock upon the closing of this
offering, and for working capital,
general corporate purposes and
potential strategic acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol................................ LXNT
The number of shares of common stock to be outstanding after this offering
is based on the number of shares of common stock outstanding as of ,
2000 and gives effect to the automatic conversion of all outstanding shares of
redeemable convertible preferred stock into 6,543,083 shares of common stock.
This number excludes:
- shares subject to options outstanding as of , 2000,
at a weighted average exercise price of $ per share; and
- shares that may be purchased by the underwriters to cover
over-allotments, if any.
Except as otherwise indicated, all information in this prospectus assumes
no exercise of the underwriters' over-allotment option.
5
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues................................................. $53,718 $70,959 $150,862
Operating income......................................... 3,500 6,517 18,362
Net income............................................... $ 2,189 $ 3,828 $ 9,256
======= ======= ========
Net income per share:
Basic.................................................. $ 0.14 $ 0.23 $ 0.57
======= ======= ========
Diluted................................................ $ 0.14 $ 0.22 $ 0.42
======= ======= ========
Weighted average shares:
Basic.................................................. 15,144 15,144 15,147
======= ======= ========
Diluted................................................ 15,144 17,593 21,862
======= ======= ========
PRO FORMA INFORMATION (UNAUDITED):
Pro forma net income(1).................................. $ 1,287 $ 2,864
======= =======
Pro forma net income per share(2):
Basic.................................................. $ 0.08 $ 0.16 $ 0.43
======= ======= ========
Diluted................................................ $ 0.08 $ 0.16 $ 0.41
======= ======= ========
Pro forma weighted average shares:
Basic.................................................. 15,144 18,016 21,690
======= ======= ========
Diluted................................................ 15,144 18,016 22,578
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
ACTUAL AS ADJUSTED(3)
--------------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 1,158 $
Working capital............................................. 24,853
Total assets................................................ 59,535
Total debt.................................................. 18,812
Total stockholders' equity.................................. 2,871
</TABLE>
- ---------------
(1) Pro forma net income gives effect to the adjustment for federal income taxes
that we would have recorded if we had been a C corporation during these
periods.
(2) Pro forma net income per share for 1998 and 1999 assumes conversion of the
redeemable convertible preferred stock at the rate of 1.1814 shares of
common stock for each share of redeemable convertible preferred stock, at
the later of the date of issuance of the redeemable convertible preferred
stock or the beginning of the period presented. For a description of the
computation of the pro forma net income per share and the number of shares
used in the pro forma calculations, see Note 1 of Notes to Consolidated
Financial Statements.
(3) The As Adjusted column reflects conversion of all outstanding redeemable
convertible preferred stock, our receipt of the net proceeds from the
offering (assuming an initial public offering price of $
per share), after deducting estimated underwriting discounts and
commissions and estimated offering expenses and application of a portion of
such proceeds to repay approximately $6.8 million of bank debt. See
"Capitalization" and "Use of Proceeds."
6
<PAGE> 10
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Risks and
uncertainties, in addition to those we describe below, that are not presently
known to us or that we currently believe are immaterial may also impair our
business operations. If any of the following risks occur, our business could be
harmed, the price of our common stock could decline and you may lose all or part
of your investment. See "Special Note Regarding Forward-Looking Statements."
WE MAY NOT BE ABLE TO HIRE OR RETAIN A SUFFICIENT NUMBER OF QUALIFIED ENGINEERS,
MANAGERS, TECHNICIANS AND OTHER EMPLOYEES TO SUSTAIN OUR GROWTH, MEET OUR
CONTRACTUAL COMMITMENTS OR MAINTAIN THE QUALITY OF OUR SERVICES.
Our future success will depend on our ability to attract and retain
additional highly skilled engineering, managerial and technical personnel.
Competition for such personnel is intense, especially for engineers and
qualified technicians with expertise designing and building local
telecommunications networks, and some major markets, particularly the New York
metropolitan area, are experiencing labor shortages. We may be unable to attract
sufficiently qualified personnel in adequate numbers to meet the demand for our
services.
OUR BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.
We are experiencing a period of significant expansion and anticipate that
further expansion will be required to address potential growth in the demand for
our new and existing services. From December 31, 1998 to December 31, 1999, we
increased our number of employees from 415 to 841. In order to increase our
revenues significantly, we need to hire a substantial number of personnel in the
near future, including program management, engineering and technical personnel.
The actual number of employees we will need to hire is not determinable and may
fluctuate significantly depending on the size and number of new contracts we
receive and any changes to the scope of our existing projects. We expect this
expansion to continue to place a significant strain on our managerial,
operational and financial resources.
To manage the expected growth of our operations and personnel, we will be
required to:
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures; and
- hire, integrate, train, motivate and manage employees.
If we fail to address these issues our business may be harmed.
WE EXPECT OUR QUARTERLY RESULTS TO FLUCTUATE. IF WE FAIL TO MEET REVENUE AND
EARNINGS ESTIMATES, OUR STOCK PRICE COULD DECLINE.
Our quarterly and annual operating results have fluctuated in the past and
will vary in the future due to a variety of factors, many of which are outside
of our control. The factors outside of our control include:
- the timing and size of network deployment by our customers;
- product mix;
- fluctuations in demand for our services;
- reductions in the prices of services offered by our competitors;
- costs of integrating acquired technologies or businesses; and
- telecommunications market conditions and economic conditions generally.
7
<PAGE> 11
The factors within our control include:
- changes in the actual and estimated costs and timing to complete
unit-price, time-certain projects;
- the timing of expansion into new markets; and
- the identification, timing and payments associated with possible
acquisitions.
Due to these factors, quarterly revenues, expenses and results of
operations could vary significantly in the future. You should take these factors
into account when evaluating past periods, and, because of the potential
variability due to these factors, you should not rely upon results of past
periods as an indication of our future performance. In addition, the long-term
viability of our business could be negatively impacted if there were a downward
trend in these factors. Because our operating results may vary significantly
from quarter to quarter based upon the factors described above, results may not
meet the expectations of securities analysts and investors, and this could cause
the price of our common stock to decline significantly.
OUR BUSINESS IS SEASONAL, EXPOSING US TO REDUCED REVENUE IN THE FIRST QUARTER OF
EACH YEAR.
We experience reduced revenue in the first quarter of each year relative to
other quarters. We believe these variations are partly due to the fact that the
budgetary years of our customers end in December and their new budgets may not
be in place until well into the first quarter. We believe our customers
sometimes delay their work orders until their budgets are in place. The onset of
winter also affects our ability to render certain network services that must be
performed outdoors.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED TREND TOWARD OUTSOURCING
TELECOMMUNICATIONS NETWORK SERVICES.
Our success is dependent on the continued trend by CLECs, Internet service
providers, and carriers' carriers to outsource their network design, deployment,
upgrading and maintenance needs. If these companies elect to perform more
network deployment services themselves, our revenues may decline and our
business would be harmed.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED GROWTH IN THE DEPLOYMENT OF
TELECOMMUNICATIONS NETWORKS, WIRELESS SYSTEMS AND INTERNET GROWTH.
The telecommunications, Internet and wireless communications industries
have experienced a dramatic rate of growth both in the United States and
internationally. If the rate of growth slows in any of these industries and our
customers reduce their capital investments in infrastructure or technology or
fail to expand into new geographic areas, our business may be harmed.
IF OUR CUSTOMERS DO NOT RECEIVE SUFFICIENT FINANCING, THE DEPLOYMENT OF NEW
TELECOMMUNICATIONS NETWORKS WILL BE DELAYED AND OUR REVENUES WILL BE NEGATIVELY
IMPACTED.
A significant portion of our revenue is generated from communications
companies seeking to deploy and expand their networks. Some of these customers
and other potential customers are new companies with limited or no operating
histories and limited financial resources. These customers must obtain
significant financing to fund operations and deploy their networks. If these
companies fail to receive adequate financing, particularly after we have begun
working with them, our results of operations may be harmed.
8
<PAGE> 12
MANY OF OUR SERVICE AGREEMENTS MAY BE CANCELED ON SHORT NOTICE, AND WE MAY BE
UNSUCCESSFUL IN REPLACING OUR SERVICE AGREEMENTS WHEN THEY EXPIRE.
We could experience a material adverse effect on our revenue, net income
and liquidity if:
- our customers cancel a significant number of service agreements;
- we fail to renew a significant number of our existing service agreements
upon their expiration; or
- we complete the required work under a significant number of our
non-recurring projects and cannot replace them with similar projects.
Many of our customers may cancel our service agreements with them on short
notice, typically less than seven days, even if we are not in default under the
agreement.
OUR MASTER SERVICE AGREEMENTS DO NOT ASSURE US REVENUE.
We currently derive a significant portion of our revenue under our master
service agreements, which primarily serve as pricing arrangements with no
revenue guarantees. A significant decline in the work our customers assign us
under our master service agreements could materially and adversely affect our
revenue and net income. Under our master service agreements, we may be one of
several companies that perform services for the customer, and our customers have
no obligations under our master service agreements to undertake any work with
us.
OUR BUSINESS MAY BE HARMED BY INCREASED REGULATION OF THE TELECOMMUNICATIONS
INDUSTRY.
Regulation of the telecommunications industry is changing rapidly, with
ongoing effects on our opportunities, competition and other aspects of our
business. The regulatory environment varies substantially from state to state.
Generally, we must obtain and maintain certificates of authority from regulatory
bodies in most states where we offer services. In addition, some of our
customers are subject to extensive regulation, which could adversely affect the
expected benefits of our arrangements with them. We cannot assure you that
future regulatory, judicial or legislative activities will not have a material
adverse effect on us.
Our operations are also subject to a variety of federal, state and local
and foreign environmental, safety and health laws and governmental regulations.
Although we monitor compliance with such laws and regulations, we cannot assure
you that we have been or will be in complete compliance with these laws and
regulations or that we will not be exposed to claims or actions that could have
a material adverse effect on our company. Although we are not aware of any
liabilities relating to contamination at the numerous sites leased by us in
connection with our operations, we cannot assure you that we will not be liable
for any contamination at these sites or that any liabilities in connection with
any such contamination will not have a material adverse effect on our company.
A LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS OR DELAYS IN PROJECT TIMING FOR SUCH
CUSTOMERS COULD CAUSE A SIGNIFICANT DECREASE IN OUR REVENUES.
We have derived, and believe that we will continue to derive, a significant
portion of our revenues from a limited number of customers. For example, for the
year ended December 31, 1999, we derived approximately 26% of our revenues from
our largest customer, approximately 13% of our revenues from another customer
and approximately 8% of our revenues from each of two additional customers. The
services required by any one customer can be limited by a number of factors,
including industry consolidation, technological developments, economic slowdown
and internal budget constraints. As a result of these factors, the volume of
work performed for specific customers is likely to vary from period to period,
and a major customer in one period may not require our services in a subsequent
period. Accordingly, we cannot be certain that present or future customers will
not terminate their network service arrangements with us or significantly reduce
or delay their contracts. Any termination, change, reduction or delay in our
projects could seriously harm our business.
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<PAGE> 13
OUR OPERATING RESULTS MAY SUFFER BECAUSE OF COMPETITION IN THE NETWORK SERVICES
INDUSTRY.
The network services market is highly competitive and fragmented and is
served by numerous companies. Many of these competitors have significantly
greater financial, technical and marketing resources, generate greater revenues
and have greater name recognition and experience than us.
We believe that the principal competitive factors in our market include
quality and responsiveness of service, industry experience, reputation, the
ability to deliver results on time and competitive pricing. In addition,
expertise in new and evolving technologies has become increasingly important. We
also believe our ability to compete depends on a number of factors outside of
our control, including:
- the prices at which others offer competitive services;
- the ability and willingness of our competitors to finance customers'
projects on favorable terms;
- the ability of our customers to perform the services themselves; and
- the extent of our competitors' responsiveness to customer needs.
We may not be able to compete effectively on these or other bases, and, as
a result, our revenues or income may decline and harm our business.
OUR BUSINESS MAY BE HARMED IF OUR NEW SERVICE OFFERINGS DO NOT GAIN CUSTOMER
ACCEPTANCE.
Part of our strategy is to generate increased revenues by developing new
service offerings for our customers. These new services may not be favorably
received by customers, may not generate significant revenues or may not be
offered in a cost-effective or timely manner. If we are unable to successfully
expand our service offerings, our business may be harmed.
WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, MARKET CONDITIONS AND
INDUSTRY DEVELOPMENTS TO MAINTAIN OR GROW OUR REVENUES.
The market for network system design, deployment, upgrading and maintenance
services is characterized by rapid change and technological improvements. Our
future success will depend in part on our ability to enhance our current service
offerings to keep pace with technological developments and to address
increasingly sophisticated customer needs. We may not be successful in
developing and marketing in a timely manner service offerings that respond to
the technological advances by others and our services may not adequately or
competitively address the needs of the changing marketplace. If we are not
successful in responding in a timely manner to technological change, market
conditions and industry developments, our revenues may decline and our business
may be harmed.
OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF
OUR MANAGEMENT TEAM.
Our success depends to a significant degree upon the continued
contributions of our executive officers, both individually and as a group. See
"Management -- Directors and Executive Officers" for a listing of our executive
officers. Our future performance will be substantially dependent on our ability
to retain and motivate them. The loss of the services of any of our executive
officers, particularly Hugh O'Kane, our Chairman, Alf Hansen, our President and
Chief Executive Officer, or Kevin O'Kane, our Vice Chairman and Chief Operating
Officer, could prevent us from executing our business strategy.
OUR SUCCESS IS DEPENDENT ON THE ABILITY OF OUR NEW MANAGEMENT TEAM TO WORK
TOGETHER.
A number of the members of our senior management team, including Alf
Hansen, our President and Chief Executive Officer, Joseph Haines, our Executive
Vice President in charge of network deployment, upgrade and maintenance
services, Victor DeJoy, our Executive Vice President in charge of design,
engineering and program management services, and Rif Haffar, our Executive Vice
President in charge of marketing and business development, have been with our
company for only a few months. Given their limited experience with our company
and working with other members of our management team, it is
10
<PAGE> 14
possible that these officers will not integrate well into our business. Their
failure to integrate well would have a significant effect on our future success.
STRIKES, WORK STOPPAGES AND SLOWDOWNS BY OUR EMPLOYEES WOULD NEGATIVELY AFFECT
OUR RESULTS OF OPERATIONS.
We currently have collective bargaining agreements in place with several
local chapters of the International Brotherhood of Electrical Workers, most of
which expire within one year. These agreements cover approximately 77% of our
841 employees. We cannot assure you that our relations with our unionized
workforce will remain positive or that our workforce will not initiate a strike,
work stoppage or slowdown in the future. In the event of such a job action, our
business would be negatively affected and we cannot be sure that we would be
able to adequately meet the needs of our customers.
OUR BUSINESS MAY BE HARMED IF WE INCREASE OUR PERSONNEL IN ANTICIPATION OF A
PROJECT AND UNDERUTILIZE OUR PERSONNEL BECAUSE SUCH PROJECT IS DELAYED, REDUCED
OR TERMINATED.
If we increase our personnel in anticipation of a project and such project
is delayed, reduced or terminated, we may underutilize this additional
personnel, which would increase our general and administrative expenses and
could harm our business.
WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO IDENTIFY, COMPLETE OR INTEGRATE
ACQUISITIONS.
Our failure to manage risks associated with acquisitions could harm our
business. A component of our business strategy is to expand our presence in new
or existing markets. One way we may choose to accomplish this task is to acquire
additional businesses. We may not be able to identify, acquire or profitably
manage additional businesses or integrate successfully any acquired businesses
without substantial expense, delay or other operational or financial problems.
Acquisitions involve a number of risks, including:
- diversion of management's attention;
- difficulty in integrating and absorbing the acquired business, its
employees, corporate culture, managerial systems and processes and
services;
- failure to retain key personnel and employee turnover;
- customer dissatisfaction or performance problems with an acquired firm;
- assumption of unknown liabilities; and
- other unanticipated events or circumstances.
WE MAY ENCOUNTER POTENTIAL COSTS OR CLAIMS RESULTING FROM PROJECT PERFORMANCE.
Many of our engagements involve projects that are significant to the
operations of our customers' businesses. Our failure to meet a customer's
expectations in the planning or implementation of a project or the failure of
unrelated third party vendors to meet project completion deadlines could damage
our reputation and adversely affect our ability to attract new business. We
frequently undertake projects in which we guarantee performance based upon
defined operating specifications or guaranteed delivery dates. Unsatisfactory
performance or unanticipated difficulties or delays in completing such projects
may result in a direct reduction in payments to us, or payment of damages by us,
which could harm our business.
THE CONSOLIDATION OF CLECS AND INTERNET SERVICE PROVIDERS COULD IMPACT OUR
BUSINESS.
Recently, the telecommunications industry has been characterized by
significant consolidation activity. This consolidation may lead to a greater
ability among CLECs and Internet service providers to provide a full suite of
network services, and could simplify integration and installation, which may
lead to a reduction in demand for our services. Moreover, the consolidation of
CLECs and Internet service providers
11
<PAGE> 15
could have the effect of reducing the number of our current or potential
customers which could result in increased bargaining power for CLECs and
Internet service providers. This potential increase in bargaining power could
create competitive pressures whereby a particular customer may request our
exclusivity with them in a particular market. Accordingly, we may not be able to
represent those customers who wish to retain our services on an exclusive basis.
A PORTION OF OUR REVENUE IS ACCOUNTED FOR ON A PERCENTAGE-OF-COMPLETION BASIS
WHICH COULD CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE.
A portion of our revenue is derived from fixed-price contracts which are
accounted for on a percentage-of-completion basis. Under the
percentage-of-completion method, in each period we recognize expenses as they
are incurred and we recognize revenue based on a comparison of the costs
incurred for each project to our currently estimated total costs to be incurred
for the project. Accordingly, the revenue we recognize in a given quarter
depends on the costs we have incurred for individual projects and our current
estimate of the total remaining costs to complete individual projects. If in any
period we significantly increase our estimate of the total costs to complete a
project, we may recognize very little or no additional revenue with respect to
that project. As a result, our gross margin in such period and in future periods
may be significantly reduced and in some cases we may recognize a loss on
individual projects prior to their completion. To the extent that our estimates
fluctuate over time or differ from actual requirements, gross margins in
subsequent quarters may vary significantly from our estimates and could harm our
business.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL CONTROL % OF
OUR COMMON STOCK AFTER THIS OFFERING AND, AS A RESULT, WILL BE ABLE TO EXERCISE
CONTROL OVER ALL MATTERS REQUIRING STOCKHOLDER APPROVAL.
On completion of this offering, our executive officers and directors and
their affiliates will beneficially own, in the aggregate, approximately %
of our outstanding common stock. In particular, Hugh O'Kane, the Chairman of the
Board of Directors, and Kevin O'Kane, the Vice Chairman of the Board of
Directors and Chief Operating Officer, will beneficially own, in the aggregate,
approximately % of our outstanding common stock. As a result, these
stockholders will be able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, which may have the effect of delaying or
preventing a third party from acquiring control over us. These transactions may
include those that other stockholders deem to be in their best interests and in
which those other stockholders might otherwise receive a premium for their
shares over their current prices. For additional information regarding our stock
ownership see "Principal Stockholders."
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY WE ARE IN.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
and telecommunications companies have been extremely volatile, and have
experienced fluctuations that have often been unrelated to or disproportionate
to the operating performance of such companies. These broad market fluctuations
could adversely affect the price of our common stock.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND OUR INVESTMENT OF
THOSE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
Most of the net proceeds of this offering are not allocated for specific
uses. Our management has broad discretion to spend the proceeds from this
offering in ways with which you may not agree. The failure of our management to
apply these funds effectively could result in unfavorable returns. This could
harm our business and could cause the price of our common stock to decline.
12
<PAGE> 16
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT DIFFICULT FOR A
THIRD PARTY TO ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE OF OUR COMMON
STOCK.
Upon the closing of the offering, Delaware corporate law and our second
restated certificate of incorporation and bylaws will contain provisions that
could delay, defer or prevent a change in control of our company or our
management. These provisions could also discourage proxy contests and make it
more difficult for you and other stockholders to elect directors and take other
corporate actions. As a result, these provisions could limit the price that
investors are willing to pay in the future for shares of our common stock. These
provisions include:
- creating a classified board of directors;
- authorizing the board of directors to issue additional preferred stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder action by written consent; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
We are also subject to certain provisions of Delaware law which could
delay, deter or prevent us from entering into an acquisition, including Section
203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in a business combination with an interested
stockholder unless specific conditions are met. See "Description of Capital
Stock -- Preferred Stock and Anti-Takeover Provisions."
OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THIS OFFERING.
Before this offering, there has not been a public market for our common
stock and the trading market price of our common stock may decline below the
initial public offering price. The initial public offering price has been
determined by negotiations between us and the representatives of the
underwriters. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. In addition, an active public
market for our common stock may not develop or be sustained after this offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION BY INVESTING IN OUR
COMMON STOCK.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock immediately after
the offering. Purchasers of common stock in this offering will suffer immediate
and substantial dilution. This dilution will reduce the net tangible book value
of their shares, since these investments will be at a substantially higher per
share price than paid by our existing stockholders. The dilution will be $
per share in the net tangible book value of the common stock from the initial
public offering price. If additional shares are sold by the underwriters
following exercise of their over-allotment option, or if outstanding options or
warrants to purchase shares of common stock are exercised, you will incur
further dilution.
FUTURE SALES OF OUR COMMON STOCK HELD BY CURRENT STOCKHOLDERS MAY DEPRESS OUR
STOCK PRICE.
Sales of a substantial number of shares of common stock by current
stockholders in the public market following this offering could cause the market
price of our common stock to decline. All the shares sold in this offering will
be freely tradable. After this offering, we will have outstanding
shares of
13
<PAGE> 17
common stock. Of these shares, shares will be eligible for sale
in the public market beginning 180 days after the date of this prospectus. After
this offering we also intend to register up to approximately
additional shares of our common stock for sale upon the exercise of outstanding
stock options issued pursuant to compensatory benefit plans or reserved for
future issuance pursuant to our stock option and restricted stock purchase plan.
14
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "except," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the
risks described above and in other parts of this prospectus. These factors may
cause our actual results to differ materially from any forward-looking
statement. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
15
<PAGE> 19
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ million from
the sale of the shares of common stock, or approximately
$ million if the underwriters' exercise their over-allotment option in
full, assuming an initial public offering price of $ per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by us.
We plan to use approximately $ million of the net proceeds of this
offering to reduce outstanding borrowings under our revolving credit facility.
Indebtedness under our revolving line of credit bears interest at the prime rate
plus 0.25% and has a maturity date of June 28, 2002. The prime rate was 8.5% as
of December 31, 1999. We also intend to use approximately $0.9 million of the
net proceeds of this offering to pay dividends accrued after December 31, 1998
on the redeemable convertible preferred stock to be converted to common stock
upon the closing of this offering. The remaining net proceeds from this offering
will be used for working capital and general corporate purposes. In addition, we
may use a portion of the net proceeds to acquire businesses; however, we
currently have no commitments or agreements and are not involved in any
negotiations to do so. Pending the uses described above, we intend to invest the
net proceeds in interest-bearing, investment-grade securities.
DIVIDEND POLICY
Covenants in our credit facility prohibit us from paying cash dividends,
other than those on our redeemable convertible preferred stock. We currently
intend to retain any future earnings to finance the growth and development of
our business and therefore do not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay cash dividends will be at
the discretion of the board of directors and will be dependent upon our
financial condition, results of operations, capital requirements, general
business conditions and other factors that the board of directors may deem
relevant.
While we were an S corporation, we made cash distributions to stockholders
of approximately $0.2 million in 1997 and $5.1 million in 1998. See "Certain
Relationships and Related Transactions."
16
<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- On an actual basis;
- On a pro forma basis after giving effect to the conversion of all
outstanding redeemable convertible preferred stock into 6,543,083 shares
of common stock and the cash payment of preferred dividends accrued from
January 1, 1999 through December 31, 1999; and
- On a pro forma as adjusted basis, giving effect to the conversion of all
outstanding redeemable convertible preferred stock, our sale of the
common stock in this offering at an assumed offering price of $ per
share, and the application of the net proceeds as described under "Use of
Proceeds."
This information should be read together with our consolidated financial
statements and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash....................................................... $ 1,158 $ 468 $
======= ======= =======
Long-term debt, including current portion(1):
Revolving credit facility................................ $ 8,841 $ 8,841 $
Subordinated notes payable to stockholders............... 7,115 7,115
Other debt............................................... 2,856 2,856
------- ------- -------
Total long-term debt, including current portion:...... 18,812 18,812
------- ------- -------
Redeemable convertible preferred stock at stated
liquidation preference of $2.2553 per share, $.001 par
value, 5,538,458 shares authorized, issued and
outstanding(2)........................................... 12,491 -- --
------- ------- -------
Stockholders' Equity:
Common stock, $.001 par value, 44,461,542 shares
authorized, 15,279,400 shares outstanding(3).......... 16 23
Additional paid-in capital............................... 2,496 14,290
Retained earnings........................................ 359 359
------- ------- -------
Total stockholders' equity............................ 2,871 14,672
------- ------- -------
Total capitalization....................................... $34,174 $33,484 $
======= ======= =======
</TABLE>
- ---------------
(1) See Notes 4 and 5 of Notes to Consolidated Financial Statements.
(2) Redeemable convertible preferred stock is presented at its stated
liquidation preference in accordance with generally accepted accounting
principles. We have agreed with the holders of our redeemable convertible
preferred stock that preferred dividends accrued from July 23, 1998 through
December 31, 1998 will be paid in the form of additional common stock, and
dividends accrued from January 1, 1999 through the date of conversion will
be paid in cash. The conversion ratio of 1.1814 shares of common stock for
each share of redeemable convertible preferred stock gives effect to
preferred dividends accrued from July 23, 1998 through December 31, 1998.
(3) Does not include 2,361,500 shares subject to options outstanding as of
December 31, 1999 at a weighted average exercise price of $3.54 per share
and does not include 1,185,000 options to purchase common stock granted
since December 31, 1999 at a weighted average exercise price of $10.07 per
share.
17
<PAGE> 21
DILUTION
If you invest in our common stock, your interest will be diluted by the
difference between the public offering price per share of our common stock and
the pro forma as adjusted net tangible book value per share of our common stock
immediately after this offering. Our pro forma net tangible book value at
December 31, 1999 was approximately $15.1 million, or $0.69 per share of common
stock. Pro forma net tangible book value represents the amount of total tangible
assets less total liabilities, divided by the pro forma number of shares of
common stock outstanding at December 31, 1999, and gives effect to the
conversion of our currently outstanding shares of our redeemable convertible
preferred stock into 6,543,083 shares of common stock upon the closing of this
offering.
After giving effect to our sale of common stock in this offering at an
assumed initial public offering price of $ per share, and our receipt of the
estimated net proceeds from the sale, our pro forma net tangible book value as
of December 31, 1999 would have been approximately $ million, or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at December
31, 1999.............................................. $0.69
Increase per share attributable to new investors.......
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing common stock in this offering,
after adjustment for:
- the conversion of our currently outstanding shares of redeemable
convertible preferred stock into common stock; and
- our sale of shares of common stock at an assumed initial public
offering price of $ per share, before deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... % $ % $
New investors.............................. % $ % $
------- ------ ------- ------
Total...................................... 100.0% $ 100.0%
======= ====== ======= ======
</TABLE>
The discussion and tables above assume no exercise of stock options
outstanding as of December 31, 1999. As of December 31, 1999, there were options
outstanding to purchase a total of 2,361,500 shares of common stock, with a
weighted average exercise price of $3.54 per share. If holders exercise these
outstanding options there will be further dilution. An additional 1,185,000
options to purchase shares of common stock were granted at a weighted average
exercise price of $10.07 per share since December 31, 1999. See "Description of
Capital Stock" and Note 11 of Notes to Consolidated Financial Statements.
18
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Consolidated
Statement of Income Data" and "Consolidated Balance Sheet Data" for, and as of
the end of, each of the years in the five-year period ended December 31, 1999,
are derived from our consolidated financial statements. The audited consolidated
financial statements as of December 31, 1998 and 1999 and for each of the years
in the three-year period ended December 31, 1999, and report thereon, are
included elsewhere in this prospectus. When you read this selected historical
financial data, it is important that you read along with it the historical
financial statements and related notes as well as the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. Historical results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues................................ $26,713 $49,473 $53,718 $70,959 $150,862
Cost of revenues........................ 18,240 38,321 43,226 56,497 120,750
General, administrative and marketing
expenses.............................. 6,159 6,976 6,992 7,945 11,750
------- ------- ------- ------- --------
Operating income........................ 2,314 4,176 3,500 6,517 18,362
Interest expense........................ -- -- 1,151 1,143 1,104
Other expense (income), net............. (24) (8) 9 166 27
------- ------- ------- ------- --------
Income before income taxes.............. 2,338 4,184 2,340 5,208 17,231
Provision for income taxes.............. 265 394 151 1,380 7,975
------- ------- ------- ------- --------
Net income.............................. $ 2,073 $ 3,790 $ 2,189 $ 3,828 $ 9,256
======= ======= ======= ======= ========
Net income per share:
Basic................................. $ 0.14 $ 0.25 $ 0.14 $ 0.23 $ 0.57
======= ======= ======= ======= ========
Diluted............................... $ 0.14 $ 0.25 $ 0.14 $ 0.22 $ 0.42
======= ======= ======= ======= ========
Weighted average shares:
Basic................................. 15,144 15,144 15,144 15,144 15,147
======= ======= ======= ======= ========
Diluted............................... 15,144 15,144 15,144 17,593 21,862
======= ======= ======= ======= ========
PRO FORMA INFORMATION (UNAUDITED):
Income before income taxes.............. $ 2,338 $ 4,184 $ 2,340 $ 5,208
Pro forma provision for income
taxes(1).............................. 1,052 1,883 1,053 2,344
------- ------- ------- -------
Pro forma net income(2)................. $ 1,286 $ 2,301 $ 1,287 $ 2,864
======= ======= ======= =======
Pro forma net income per share(3):
Basic................................. $ 0.08 $ 0.15 $ 0.08 $ 0.16 $ 0.43
======= ======= ======= ======= ========
Diluted............................... $ 0.08 $ 0.15 $ 0.08 $ 0.16 $ 0.41
======= ======= ======= ======= ========
Pro forma weighted average shares:
Basic................................. 15,144 15,144 15,144 18,016 21,690
======= ======= ======= ======= ========
Diluted............................... 15,144 15,144 15,144 18,016 22,578
======= ======= ======= ======= ========
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash..................................... $ 1,270 $ 1,525 $ 2,312 $ 1,495 $ 1,158
Working capital.......................... 2,168 4,664 2,516 10,691 24,853
Total assets............................. 12,739 20,044 18,432 32,309 59,535
Total debt............................... 6,976 8,607 22,922 13,985 18,812
Total stockholders' equity (deficit)..... 2,762 5,652 (4,024) (6,388) 2,871
</TABLE>
- ---------------
(1) Through July 23, 1998, we elected to be taxed as an S corporation under the
Internal Revenue Code of 1986. Accordingly, we did not recognize any
provision for federal income tax expense during periods prior to that time.
The pro forma adjustment for income taxes reflects the pro forma provision
for federal income taxes which we would have recorded if we had been a C
corporation during these periods.
(2) Pro forma net income for 1995 through 1998 gives effect to the pro forma
provision for federal income taxes that we would have recorded if we had
been a C corporation during these periods.
(3) Pro forma earnings per share for 1998 and 1999 assumes conversion of the
redeemable convertible preferred stock at the rate of 1.1814 shares of
common stock for each share of redeemable convertible preferred stock, at
the later of the beginning of the period presented or the date of issuance
of the redeemable convertible preferred stock. For a description of the
computation of the pro forma net income per share and the number of shares
used in the pro forma calculations for the years 1997 through 1999, see Note
1 of Notes to Consolidated Financial Statements.
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the related notes and the other financial
information appearing elsewhere in this prospectus. See also "Special Note
Regarding Forward-Looking Statements" on page 15.
OVERVIEW
We provide outsourced local telecommunications network services to
telecommunications companies by supplying the expertise and resources needed to
enable our customers to build and connect their networks to other
telecommunications companies and individual end users. We provide services 24
hours a day, seven days a week.
For most of our services, revenues are recognized under the completed
contract method, in which we recognize revenues when our services have been
performed and the projects have been completed. For projects whose duration is
expected to exceed 90 days, we recognize revenues using the percentage-of-
completion method. Under the percentage-of-completion method, in each period we
recognize expenses as they are incurred and we recognize revenue based on a
comparison of the costs incurred for each project to our currently estimated
total costs to be incurred for the project. Accordingly, the revenue we
recognize in a given quarter depends on the costs we have incurred for
individual projects and our current estimate of the total remaining costs to
complete individual projects. If in any period we significantly increase our
estimate of the total remaining costs to complete a project, we may recognize
very little or no additional revenue with respect to that project. As a result,
our gross margin in such period and in future periods may be significantly
reduced and in some cases we may recognize a loss on individual projects prior
to their completion. The projects for which we use the percentage-of-completion
method of accounting are typically structured with milestone events that dictate
the timing of payments to us from our customers. Accordingly, there may be a
significant delay between the date we record the revenue and the date we receive
payment from our customers. Our customers for these projects may withhold 10%
from each billing until after the project has been completed.
We operate in cities in the Northeast and MidAtlantic regions, including
Baltimore, Boston, Newark, New York, Philadelphia, Stamford and Washington, D.C.
For the year 1999, approximately 80% of our revenues were earned from services
provided in the New York metropolitan region, including New York City, New
Jersey, Long Island and Westchester County.
Our customers for the design and deployment of telecommunications networks
are large, well-established telecommunications carriers as well as smaller,
early stage telecommunications carriers. We have derived, and believe that we
will continue to derive, a significant portion of our revenues from a limited
number of customers. For the year 1999, we derived approximately 26% of our
revenues from our largest customer and 13% of our revenues from our second
largest customer. The volume of work performed for specific customers is likely
to vary from period to period, and a major customer in one period may require a
lesser amount of our services in a subsequent period.
Our cost of sales includes direct compensation and benefits, allocation of
overhead including vehicles, facilities expenses, small tools and equipment, and
other direct project-related expenses. As of December 31, 1999, we had
approximately 756 employees working directly on projects and approximately 47
employees providing supervision and support to employees working directly on
projects. Labor and related benefits comprise the largest portion of our cost of
sales because our customers generally furnish most of the materials required for
each project, except where we provide program management services, in which case
we are responsible for providing the required materials as well as any
subcontracting services.
General, administrative and marketing expenses include compensation and
benefits, facilities expenses, provision for unrealizable accounts receivable,
incentive compensation and other related expenses not chargeable directly to
projects. As of December 31, 1999, we had approximately 38 employees performing
general and administrative work. Prior to December 31, 1999 we did not have any
employees devoted full
21
<PAGE> 25
time to sales and marketing, and our advertising and marketing expenses were not
significant. We expect to increase our marketing expenses in the future.
Depreciation and amortization expenses include depreciation of our property
and equipment, primarily vehicles, and amortization related to leasehold
improvements and computer software purchased for internal use.
Interest expense is related to interest on notes payable to banks,
subordinated notes payable to stockholders, and installment note and capitalized
lease obligations related to equipment purchases. We currently have a $12.5
million revolving credit line with banks, under which we had $8.8 million
outstanding at December 31, 1999. Borrowings bear interest at the prime rate
plus 0.25%, and the credit facility expires in June 2002. We may borrow
additional funds in the future for general corporate purposes and possible
acquisitions, and we may incur additional interest expense as a result.
On January 1, 1997, we repurchased common shares owned by a stockholder and
issued a subordinated promissory note in the amount of $10.2 million bearing
interest at 6% per year. We make quarterly payments on that note, and as of
December 31, 1999, a balance of $6.7 million was outstanding. We also have $0.4
million in subordinated notes payable to our two principal common stockholders
bearing interest at 6% per year, and our bank credit facility currently does not
permit any payments on these notes. We also have installment note obligations,
which arise when we obtain financing from dealers or banks for equipment or
vehicles which we purchase for use by our technical field employees and
capitalized lease obligations which may arise when we lease equipment.
On July 23, 1998, we converted from an S corporation to a C corporation.
Prior to becoming a C corporation, our stockholders were taxed individually for
their share of our profits. Until July 23, 1998, our financial statements did
not reflect a provision for federal income taxes. Subsequent to that date, we
have recorded federal income taxes at the standard statutory C corporation rates
based on pre-tax income. For the year 1998, our financial statements reflect an
income tax provision based on pre-tax income earned from July 23, 1998 to
December 31, 1998.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of income data as a percentage of total revenues. Our results of
operations are reported as a single business segment. The percentages may not
add due to rounding.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of revenues............................................ 80.5 79.6 80.0
General, administrative and marketing expenses.............. 13.0 11.2 7.8
----- ----- -----
Operating income............................................ 6.5 9.2 12.2
Interest expense............................................ 2.1 1.6 0.7
Other expense, net.......................................... -- 0.2 --
----- ----- -----
Income before income taxes.................................. 4.4 7.3 11.4
Provision for income taxes.................................. 0.3 1.9 5.3
----- ----- -----
Net income.................................................. 4.1% 5.4% 6.1%
===== ===== =====
</TABLE>
YEAR ENDED 1999 COMPARED TO YEAR ENDED 1998
Revenues. Our revenues increased 113% to $150.8 million in 1999 from $71.0
million in 1998. The increase was attributable to higher demand from our
customers for our services, as they expanded their telecommunications networks
primarily in the New York metropolitan area. During 1999, we entered into
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<PAGE> 26
an engineering, procurement and construction contract with a customer, or the
EPC contract, under which we recorded approximately $34.0 million of revenues
for the year. We also expanded our operations to the New England area during
1999.
Cost of revenues. Our cost of revenues increased 114% to $120.8 million in
1999 from $56.5 million in 1998, primarily due to an increase in technical
personnel in support of additional demand from customers for our services. Costs
of approximately $30.0 million were incurred in connection with the EPC
contract.
General, administrative and marketing expenses. Our general,
administrative and marketing expenses increased 48% to $11.8 million in 1999
from $7.9 million in 1998. The increase was primarily due to additional
administrative personnel required to support our increased level of revenues, as
well as a higher provision for unrealizable accounts receivable, which increased
by $1.4 million in 1999 compared with 1998 as a result of our increased level of
revenues.
Net income. Our net income increased 142% to $9.3 million in 1999 from
$3.8 million in 1998. This increase was due to significantly higher revenues
offset by increased cost of sales and increased general, administrative and
marketing expenses and further offset by an increase in the provision for income
taxes as a result of our change from an S corporation to a C corporation on July
23, 1998. That change resulted in an increase in our effective tax rate to 45%
in 1999 from 27% in 1998. Our financial statements for 1998 reflected an income
tax provision based on pre-tax income earned from July 23, 1998 to December 31,
1998. Our effective tax rate in 1999 was approximately 45% because a significant
portion of our operations are currently concentrated in New York City, which
subjects us to a local tax on income derived in that jurisdiction.
YEAR ENDED 1998 COMPARED TO YEAR ENDED 1997
Revenues. Our revenues increased by 32% to $71.0 million in 1998 from
$53.7 million in 1997. The increase was primarily attributable to higher demand
for our services from our customers as they expanded their telecommunications
networks primarily in the greater New York metropolitan area, and partially as a
result of the expansion of our operations in 1998 into the Philadelphia and
Washington, D.C. areas.
Cost of revenues. Our cost of revenues increased by 31% to $56.5 million
in 1998 from $43.2 million in 1997, primarily due to increased technical
personnel in support of additional demand from customers for our services.
General, administrative and marketing expenses. Our general,
administrative and marketing expenses increased approximately 14% to $7.9
million in 1998 from $7.0 million in 1997. The increase was due in part to
increased administrative personnel to support our higher level of revenues, and
in part to an increase of $0.3 million in rent expense for our former New York
City headquarters paid in 1998 to entities which are owned by our principal
common stockholders. Prior to 1998, we paid rent based on an arrangement with
our principal common stockholders. In 1998, we entered into a formal lease
agreement providing for rentals which are based on market values of comparable
properties in the local region.
Other expense, net. Other expense of $0.2 million in 1998 represented
certain nonrecurring consulting fees related to the change in our corporate
structure. See Note 1 of Notes to Consolidated Financial Statements.
Net income. Our net income increased 75% to $3.8 million in 1998 from $2.2
million in 1997. This increase was due to higher revenues offset by increased
cost of sales and increased general and administrative expenses, further offset
by an increase in the provision for income taxes as a result of our change from
an S corporation to a C corporation on July 23, 1998, which resulted in an
increase in the effective income tax rate to 27% in 1998 from 7% in 1997.
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<PAGE> 27
QUARTERLY OPERATING RESULTS
The following table presents our unaudited quarterly results, in dollars
and as a percentage of revenues, for the eight quarters ended December 31, 1999.
The percentages may not add due to rounding. The information for each of these
quarters has been prepared on the same basis as our audited financial statements
appearing elsewhere in this prospectus. The eight quarterly periods cover each
of our two most recently completed fiscal years reported in the consolidated
financial statements and the notes thereto included elsewhere in this
prospectus. We believe this period is sufficiently long to reflect historical
trends and fluctuations in our results of operations. We believe this
information reflects all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such information in accordance
with generally accepted accounting principles.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $14,729 $16,320 $16,873 $23,037 $20,165 $28,930 $46,447 $55,320
Cost of revenues.................. 11,516 14,177 14,825 15,979 15,965 24,194 37,066 43,525
General, administrative and
marketing expenses.............. 1,955 1,593 1,206 3,191 1,920 2,390 2,903 4,537
------- ------- ------- ------- ------- ------- ------- -------
Operating income.................. 1,258 550 842 3,867 2,280 2,346 6,478 7,258
Interest expense.................. 251 248 261 383 224 238 290 352
Other expense (income), net....... -- -- 166 -- -- -- 39 (12)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes........ 1,007 302 415 3,484 2,056 2,108 6,149 6,918
Provision for income taxes........ 98 29 152 1,101 951 975 2,846 3,203
------- ------- ------- ------- ------- ------- ------- -------
Net income........................ $ 909 $ 273 $ 263 $ 2,383 $ 1,105 $ 1,133 $ 3,303 $ 3,715
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................. 78.2 86.9 87.9 69.4 79.2 83.6 79.8 78.7
General, administrative and
marketing expenses.............. 13.3 9.8 7.1 13.9 9.5 8.3 6.3 8.2
------- ------- ------- ------- ------- ------- ------- -------
Operating income.................. 8.5 3.4 5.0 16.8 11.3 8.1 13.9 13.1
Interest expense.................. 1.7 1.5 1.5 1.7 1.1 0.8 0.6 0.6
Other expense (income), net....... -- -- 1.0 -- -- -- 0.1 --
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes........ 6.8 1.9 2.5 15.1 10.2 7.3 13.2 12.5
Provision for income taxes........ 0.7 0.2 0.9 4.8 4.7 3.4 6.1 5.8
------- ------- ------- ------- ------- ------- ------- -------
Net income........................ 6.2% 1.7% 1.6% 10.3% 5.5% 3.9% 7.1% 6.7%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
EIGHT QUARTERS ENDED DECEMBER 31, 1999
Revenues. Over the eight quarters ended December 31, 1999, our quarterly
revenues increased from $14.7 million to $55.3 million. Our quarterly revenues
have grown in each of the eight quarters ended December 31, 1999 with the
exception of the quarter ended March 31, 1999. We believe that quarterly
operating results may experience seasonal fluctuations in the future. For
instance, quarterly results may fluctuate based on customers' calendar year
budgeting cycles, which may result in a delay in their issuance of work orders.
In addition, our outdoor services may be adversely affected by winter weather
conditions.
Our operating income margin may fluctuate significantly from quarter to
quarter. We may accept low margin projects from customers as a strategy to
establish relationships and subsequently obtain higher
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<PAGE> 28
margin projects from those customers in the future. In addition, we may
experience higher than anticipated costs on fixed-price contracts, and in such
event operating margins would be adversely affected. General, administrative and
marketing expenses in the fourth quarter of 1998 included a provision for
incentive compensation applicable to the last nine months of the year because
operating margins in the second and third quarters had not achieved management's
targets.
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1998, we primarily financed our operations through cash flow from
operations, borrowings of up to $4.5 million from a bank credit line and
periodic advances from our principal common stockholders. In July 1998, we
raised $11.5 million through a private sale of redeemable convertible preferred
stock. Of these proceeds, $4.9 million was used to pay dividends to common
stockholders, $2.6 million was used to pay portions of promissory notes to
stockholders, and the balance of $4.0 million was used to fund our working
capital requirements.
As of December 31, 1999, we had cash of $1.2 million and $3.7 million of
availability under our bank credit facility.
Prior to June 1999, we had a $4.5 million line of credit from a bank. In
June 1999, we entered into a credit agreement with two banks. The agreement
provided us with a $10.0 million revolving credit facility, which was
subsequently increased to $12.5 million in December 1999. This credit facility
is to be used for general corporate purposes including working capital. The
credit facility expires in June 2002, and bears interest at the prime rate plus
0.25%. As of December 31, 1999, the prime rate was 8.5%. The line of credit is
secured by substantially all of our business assets, and is senior to $7.1
million of subordinated indebtedness to our principal common stockholders. As of
December 31, 1999, $8.8 million was outstanding under the credit facility.
Under the terms of the credit facility, we are required to provide the
banks with periodic financial statements and other reports, and we must meet
specified thresholds with respect to profitability and a debt to net worth
ratio. Additionally, covenants in the credit facility limit our ability to make
acquisitions of other businesses in excess of an aggregate of $250,000 in any
calendar year, or sell any assets outside the ordinary course of business. The
covenants also prohibit us from declaring or paying dividends, other than on the
redeemable convertible preferred stock being converted into common stock upon
the closing this offering, and creating liens or incurring additional
indebtedness other than for equipment obtained in the ordinary course of
business. The bank loans are partially guaranteed by our two principal common
stockholders up to a maximum of $1.5 million each.
Cash provided by and used in operations is primarily derived from our
projects in process and changes in working capital. Net cash provided by
operations was $0.0 million in 1999, while net cash used in operations was $3.4
million in 1998. In 1998 and 1999 the Company's primary use of cash was to
finance higher receivables, which have increased as a result of our increased
revenues.
Cash used in investing activities was $0.4 million, $0.9 million, and $2.9
million in 1997, 1998, and 1999, respectively. Investing activities consist
primarily of capital expenditures to support our growth.
Cash provided by financing activities in 1999 was $2.6 million, which was
primarily derived from additional bank loans, offset by payments of $1.6 million
on a subordinated note payable to a stockholder. Cash provided by financing
activities in 1998 was $3.5 million, which was primarily derived from the
proceeds from issuance of redeemable convertible preferred stock totaling $11.5
million, partially offset by dividend payments of $5.1 million and repayments of
$3.8 million on subordinated notes payable to stockholders. Cash used by
financing activities in 1997 was $3.4 million, primarily consisting of payments
to common stockholders while the Company was an S Corporation under the tax
laws.
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<PAGE> 29
We have no material commitments other than obligations under our bank
credit facility, installment obligations related to equipment purchases, leases
for facilities, computer equipment and vehicles, and subordinated notes payable
to stockholders. See Notes 4, 5 and 9 of Notes to Consolidated Financial
Statements. Our future capital requirements will depend upon many factors,
including our potential expansion to additional geographic regions, which will
require that we expend funds for personnel, equipment and facilities in each
region in advance of earning revenue and receiving payments from customers.
The estimates for the periods for which we expect the net proceeds from
this offering and our available cash balances and credit facility to be
sufficient to meet our capital requirements are forward-looking statements that
involve risks and uncertainties as set forth under the caption "Risk Factors" in
this prospectus. Our capital requirements will depend on numerous factors,
including the timing of payments from customers, our ability to accelerate
billings to customers for completed and uncompleted projects, our potential
expansion to additional geographic regions, the resources we dedicate to new
geographic regions and demand for our services in such new regions, and possible
acquisitions of complementary businesses.
We may need to raise additional capital if we expand more rapidly than
initially planned, to respond to customer demands or competitive pressures or to
acquire complementary businesses. If additional funds are raised through the
issuance of equity or convertible debt or preferred securities, the percentage
ownership of our common stockholders will be reduced, our common stockholders
may experience additional dilution and such securities may have rights,
preferences or privileges senior to those of our common stockholders. There can
be no assurance that additional financing will be available or on terms
favorable to us. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of
unanticipated opportunities, expand our suite of services or otherwise respond
to competitive pressures could be significantly limited. Our business may be
harmed by such limitations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion contains forward-looking statements that are subject to
risks and uncertainties. Actual results could vary materially as a result of a
number of factors including those set forth in the "Risk Factors" section. The
following discusses our exposure to market risk related to changes in interest
rates, equity prices and foreign currency exchange rates. We do not believe that
our exposure to market risk is material.
As of December 31, 1999, we had cash of $1.2 million. Pending application
of the proceeds of this offering, as described in "Use of Proceeds," we intend
to invest the net proceeds in interest-bearing investment grade securities,
primarily short-term, highly liquid investments with maturities at the date of
purchase of less than 90 days. These investments are subject to interest rate
risk and will decrease in value if market interest rates increase. A
hypothetical increase or decrease in the market interest rates by 10 percent
from the rates in effect on the date of this prospectus would cause the fair
value of these short-term investments to decline by an insignificant amount. We
have the ability to hold these investments until maturity, and therefore we do
not expect the value of these investments to be affected to any significant
degree by the effect of a sudden change in market interest rates. Declines in
interest rates over time will, however, reduce our interest income.
We do not own any investments in publicly traded equity securities.
Therefore, we do not currently have any direct equity price risk.
We do not have any international operations, and we do not enter into
forward exchange contracts or other financial instruments with respect to
foreign currency. Accordingly, we do not have any foreign currency exchange rate
risk.
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<PAGE> 30
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires entities to capitalize certain costs related to
internal-use software once certain criteria have been met. In April 1998, the
same committee issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities". These standards are effective for the first quarter of the
year 1999. The adoption of these standards did not have a material effect on our
consolidated financial statements.
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<PAGE> 31
BUSINESS
OVERVIEW
We are a leading provider of outsourced local telecommunications network
services for established and emerging communications companies, including
competitive local exchange carriers, Internet service providers and carriers'
carriers. Our principal focus is to provide the expertise and resources our
customers need to build and connect their networks to other local and long
distance carriers and individual end users. In our customers' competitive
environment where speed to market is key, our outsourced solution provides the
mission-critical, often scarce resources that our customers need. We have the
technical expertise, local knowledge and highly skilled workforce that enable us
to design, deploy and upgrade local telecommunications networks more quickly and
efficiently than many of our customers could themselves. We provide services 24
hours a day, seven days a week, to ensure the reliability of these networks. Our
largest customers include AT&T, Level 3 Communications, MCI Worldcom, Metromedia
Fiber Network, Network Access Solutions, Network Plus, Nextlink Communications,
Teligent and Winstar Communications. Over the past three years, we have
successfully expanded our operations from the New York City metropolitan area to
other cities, including Baltimore, Boston, Newark, Philadelphia, Stamford and
Washington, D.C. We plan to continue expanding with our customers into other
metropolitan areas.
INDUSTRY BACKGROUND
Growth of the Telecommunications Industry
The Telecommunications Act of 1996 opened the local telephone market to
competition by requiring the incumbent local exchange carriers, or ILECs, to
provide competitive local exchange carriers, or CLECs, with unbundled access to
their local networks. CLECs can now offer local, long distance and data services
to their customers and are focused on providing the high bandwidth that
businesses and consumers are demanding. The telecommunications industry is
growing rapidly and our customers are making large capital investments to build
and expand their networks to satisfy the increasing demand for broadband
Internet access, wireless communications and enhanced data and voice services.
We believe the CLECs' share of the growing local telecommunications market
will increase significantly, resulting in a future CLEC market substantially
larger than today. CLECs are currently racing to build out their networks as
quickly as possible to capture a greater share of this expanding opportunity. By
supplying the last mile connection directly to their customers, CLECs are able
to provide them with the broadband access that they increasingly need. The
challenges of quickly building a complex local network, particularly over the
last mile, require CLECs to allocate their resources efficiently. We believe
this has increasingly led them to outsource network design, deployment, upgrades
and maintenance.
The demand for broadband Internet access and other enhanced data services
is accelerating the adoption of new technologies. High speed fiber networks are
being coupled with broadband wireless technologies to deliver enhanced
telecommunications capabilities and applications to new customers and markets.
According to Dataquest, in February 1999, the market for broadband wireless
access services in North America alone is expected to generate $7.8 billion in
revenue by 2002.
CLECs must continuously upgrade their networks with new technologies and
expand into new geographic regions in order to remain competitive and satisfy
the demand for broadband services. Additionally, new carriers are entering the
market as a result of deregulation and the demand for new services, fueling the
development of new networks. These carriers are deploying new networks and
expanding and upgrading their existing networks and equipment.
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<PAGE> 32
Changes in the Telecommunications Industry
As telecommunications companies, including CLECs and Internet service
providers, deploy their networks, they face significant competition. In order to
differentiate themselves and remain competitive in this new environment, they
are seeking to:
- increase coverage and capacity of their networks to gain market share;
- provide connections over the last mile directly to end-users to supply
high bandwidth connectivity, which enables them to bypass the ILECs,
thereby avoiding the accompanying access fees and the reliance on the
ILECs to provide service and install connections;
- offer services in new geographic markets; and
- introduce other emerging data networking and broadband technologies and
other point-to-multipoint architectures for the provision of high speed
data, Internet access and other broadband services.
The convergence of traditional wireline, wireless and cable services is
also adding complexity to the telecommunications environment as carriers deploy
networks spanning traditional wireless/wireline boundaries to offer these
enhanced services and new technologies.
New Challenges for Telecommunications Companies
Due to this increasingly competitive environment, telecommunications
companies such as CLECs and Internet service providers are focused on satisfying
customer demand for enhanced services, better quality, faster data transmission
and lower prices. The proliferation of CLECs and new technologies has created an
environment where speed to market is a critical component of a CLEC's success.
CLECs are also faced with the challenge of managing increasingly complex
networks and technologies. For example, the ever-increasing demand for broadband
services and capacity requiring the transmission of large amounts of data
creates additional new technological hurdles for companies establishing or
upgrading their networks. In this dynamic environment, customer acquisition and
retention are key determinants of success. We believe this has led carriers to
increasingly prioritize their resources, focusing on revenue generating
activities and outsourcing when they can do so effectively.
We believe the changing environment is also placing significant operational
challenges on CLECs. CLECs must make decisions about which geographic markets to
serve and which services and technologies to offer. Personnel challenges and
process implementations can present cost uncertainties and operational
challenges for carriers to deploy and manage their networks. Additionally,
networks are being deployed with equipment from unrelated vendors, posing system
integration challenges. This situation is exacerbated by consolidation in the
industry, which often entails the integration of distinct networks.
The Need for Outsourcing
We believe that telecommunications companies such as CLECs, Internet
service providers and carriers' carriers are outsourcing network planning,
deployment, upgrading and maintenance to focus on their core businesses and
refine their competitive advantage. In our experience, potential customers who
are seeking outsourcing are looking for service providers who:
- offer responsive, reliable and high quality service;
- offer turnkey solutions;
- have experience designing, installing and maintaining local
telecommunications networks;
- offer services in numerous locations;
- are technology and vendor independent; and
- have sufficient numbers of highly skilled, experienced employees.
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<PAGE> 33
THE LEXENT ADVANTAGE
We provide outsourced local telecommunications network services to CLECs,
Internet service providers and carriers' carriers for the design, deployment,
upgrading and maintenance of their networks. We offer turnkey solutions. We have
expertise installing, upgrading and maintaining equipment from most major
telecommunication equipment manufacturers, including Lucent, Nortel, Marconi,
ADC, Cisco, AccessLan and Tellabs. We are able to manage large scale deployments
for our customers and upgrade their growing networks as usage increases and
customers are added. We also provide ongoing maintenance and emergency
restoration services 24 hours a day, seven days a week to ensure the reliability
of our customers' networks. Our program management process enables us to meet
our customers' needs on time and without compromising quality.
Experience and Reputation. Since the late 1980s, we have provided critical
services to local telecommunications providers in the New York metropolitan
area. We installed a significant portion of the initial fiber optic networks in
New York City for MCI Worldcom. During the same period, we provided similar
services to AT&T. We continue to provide services to those customers today for
the daily upgrading and maintenance of their growing networks. The reputation we
have developed by providing high quality services has enabled us to obtain
significant additional business from other telecommunications companies.
Turnkey Solutions. The end-to-end, or turnkey, approach that we offer
allows our customers to engage a single responsible party who is accountable for
designing, deploying, upgrading and maintaining their networks. We believe our
customers value the continuity of service provided by having the same people who
designed, engineered and installed their network continue to upgrade and
maintain this growing network on a daily basis. We provide our customers with a
primary point of accountability and reduce the inefficiencies associated with
coordinating multiple vendors. By eliminating the need for our customer to
assemble, train and retain network deployment and maintenance staff, we are able
to speed up the deployment of the customer's network and allow the customer to
focus its resources on revenue generating activities, such as customer
activations and retention.
Focus on Local Networks and the Last Mile. Our primary focus is to enable
our customers to build and connect their networks to other local and long
distance carriers and individual end users. We believe a major challenge facing
our customers is providing a high bandwidth, last mile connection to end users.
The operational experience of our management team, engineers and technicians has
provided us with an understanding of what it takes to build and operate local
telecommunications networks and complete the high bandwidth last mile. Our
senior management team averages 15 years of telecommunications industry
experience.
Single Vendor in Multiple Markets. We strive to provide responsive,
reliable and consistently high quality services in each market where we operate.
We provide standard designs, installations, testing procedures and recordkeeping
so that our customers can expect to receive uniformly high standards of service
in all of their locations. We provide our customers with the opportunity to deal
with a single vendor in multiple markets and assure them that the quality of the
services provided will be consistent across all markets. We believe our single
source solution is an important feature of our services as we expand to new
markets.
Technology and Vendor Independence. Our technology and vendor independence
is an important component of our ability to meet and exceed customer
expectations. We have experience in all major telecommunications network
technologies, including fixed wireless, DSL and dense wavelength division
multiplexing systems. We install and maintain equipment from most major
telecommunications equipment manufacturers, including Lucent, Nortel, Marconi,
ADC, Cisco, AccessLan and Tellabs, and we have not aligned ourselves with
products of any particular vendor.
Depth and Scale. Our principal asset is our workforce of over 840 people,
including more than 755 engineers and highly trained technicians. Our
technological expertise and industry knowledge have enabled us to form and
maintain strong customer relationships with both established telecommunications
30
<PAGE> 34
companies, such as MCI Worldcom and AT&T, and newer market entrants. In 1999, we
provided services to more than 70 telecommunications companies out of our 16
facilities in cities from Boston to Washington, D.C., ranging in scope from
multi-year design and deployment contracts to emergency restoration services.
STRATEGY
Our objective is to be the leading provider of outsourced local
telecommunications network services in major metropolitan markets for CLECs,
Internet service providers and carriers' carriers. The key elements of our
strategy are to:
Exploit the Rapidly Growing Demand for Broadband Internet Access and
Wireless Communications. The demand for high bandwidth connections to the
Internet is tremendous and is expected to increase dramatically in the next 10
years. According to International Data Corporation, the number of Internet users
worldwide is expected to increase from 196.1 million in 1999 to 502.4 million in
2003 and the market for fixed wireless technologies for voice and data/Internet
access services for U.S. businesses is expected to grow from $309.3 million in
1999 to $5.2 billion in 2003. We believe that our customers will increasingly
turn to us for the design, deployment, upgrading and maintenance of their
networks as these markets grow. Also, according to Vertical Systems Group,
approximately 76% of businesses are within one mile of an existing fiber optic
network. Our ability to design, deploy, upgrade and maintain the last mile
connection has positioned us to capitalize on our customers' goal to complete
and enhance these connections to end users.
Grow Our Base of Leading Customers by Focusing on Customer Satisfaction and
Increasing Their Speed to Market. Our customers depend on us to quickly and
efficiently design, deploy, upgrade and maintain network assets critical to the
success of their businesses. To justify this reliance, we must consistently
provide our customers with responsive, reliable and high quality service. We are
committed to meeting the needs of our customers and strive to exceed their
expectations in quality and speed to market. We believe we have been successful
in developing customer loyalty and trust because of our high standards and
responsiveness and the fact that a majority of our customers give us repeat
business.
Pursue Client-Driven Geographic Expansion in Major Metropolitan Areas. We
have expanded our geographic presence with some of our key customers as they
have grown their networks. This has allowed us to enter new markets with a
customer base already in place. We believe that the major metropolitan areas in
the U.S. represent a significant opportunity for future growth for us as CLECs,
Internet service providers and carriers' carriers continue to expand and upgrade
their networks. We intend to expand our service area on a city by city basis to
satisfy the demands of our growing customers. As we penetrate these new markets,
we expect to continue to capitalize on opportunities created by new market
entrants as well as the expansion and maintenance of networks for existing
customers. We may also expand by pursuing acquisitions that will supplement our
technical expertise, allow us to acquire additional human resources or strategic
customer relationships or expand our presence in key geographic markets where we
could more effectively complete a project or gain access to new contracts.
Create New Revenue Streams by Expanding Our Services and Pursuing
Cross-Selling Opportunities. We are constantly searching for new ways to serve
our customers. For example, we have developed and are testing a web-based
workflow and asset management software system which will enable us to process
orders and maintain online records of all work performed at our customers'
facilities. Expanding our services provides new channels for revenues and the
ability to cross-sell our suite of services to existing customers and offer a
broader array of services to new customers. We often utilize our design and
engineering services to establish relationships with customers as soon as a
project is conceived. Based on these relationships, we pursue opportunities for
program management and network deployment. Once a network is deployed, we offer
ongoing network upgrade and maintenance services. Our experience with emerging
technologies also offers opportunities for network upgrades and deployment of a
carrier's next generation network. As technologies continue to evolve and
networks become more complex, we will continue to broaden our services to meet
the changing needs of our customers.
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Attract, Motivate and Retain a Highly Specialized Workforce Capable of
Remaining at the Forefront of Emerging Technologies. We believe that our future
success will depend on our continued ability to attract, retain, integrate and
motivate qualified personnel, and upon the continued service of our senior
management and key technical personnel. Our workforce has extensive experience
working with various leading edge technologies and equipment from numerous
manufacturers. We intend to continue to attract and retain highly skilled and
experienced professionals by offering technical training opportunities, bonus
opportunities and competitive salaries and benefits.
OUR SERVICES
We provide complete local telecommunications network solutions to CLECs,
Internet service providers and carriers' carriers, from the design and
engineering phases, through deployment and ongoing network upgrading and
maintenance services on a 24 hour a day, seven day a week basis.
Design, Engineering and Program Management
Design and Engineering. Our engineers discuss targeted coverage areas with
the customer and design route maps for fiber optic and fixed wireless backbone
and fiber rings to suit their needs and minimize delays due to limited right of
way or conduit access. Because of our knowledge of other projects in the areas
where we operate and our familiarity with the conduits in the streets and
entrances into buildings where cable may be placed, we are often able to avoid
disruptions or delays in installations by designing networks to avoid known or
potential problem areas.
We also design layouts for facilities within central offices and other
network locations, which include equipment configurations, power distribution
systems and cable routes throughout building riser systems. We also develop
recordkeeping and maintenance procedures. Our understanding of the underlying
technologies and the equipment to be installed enables us to provide the most
efficient designs for our customers.
Program Management. Our program managers are responsible for managing all
aspects of the relationship with our customers. Program managers oversee the
total scope of services we provide, including supervising and coordinating the
engineering and design process, securing building and zoning permits, managing
multiple vendors and documenting the entire process upon completion. The program
manager provides the customer with a single point of contact in order to ensure
that the customer's needs are being met.
Network Deployment Services
We believe our success is largely based on our ability to be a single
source provider of vertically integrated services that have traditionally been
offered separately by multiple vendors coordinated by a carrier's internal
deployment staff. We provide a wide range of services for the deployment of
telecommunications networks that allow for broadband connectivity.
We install fiber backbone, local SONET rings, dense wave division
multiplexing systems, fixed wireless systems, digital subscriber line and
digital loop carrier equipment, digital cross connect systems, routers, power
distribution systems and telemetry monitoring systems and other technologies. We
also provide daily circuit testing of DS0, DS1 and DS3 services provided by the
ILECs for our customers. We have the expertise to install equipment from most
major telecommunications equipment vendors. We also set up the interconnections
between CLECs, long distance carriers and ILECs, which allow telecommunications
traffic to be exchanged between their networks.
Network Upgrade and Maintenance Services
We provide day-to-day upgrade and maintenance services to our customers. As
network usage increases, we install additional access lines and other
telecommunications and electrical equipment to handle the additional capacity.
We also upgrade equipment and reconfigure the network as the technology
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<PAGE> 36
changes or improves. We have technicians based at our major customers' premises
to constantly monitor any service issues that may arise and perform routine
maintenance. Our technicians are available 24 hours a day, seven days a week to
handle any emergency repairs, such as fiber cuts or equipment problems, while
preventing or minimizing any service disruptions. Our services allow our
customers to maintain the reliability of their networks without building a large
workforce in all of their locations to handle day-to-day problems.
CUSTOMERS
We provide network design, deployment, upgrade and maintenance services
primarily to CLECs, Internet service providers and carriers' carriers. Set forth
below is a list of our largest customers during 1999:
AT&T
Level 3 Communications
MCI Worldcom
Metromedia Fiber Network
Network Access Solutions
Network Plus
Nextlink Communications
Teligent
Winstar Communications
SALES AND MARKETING
We market and sell our services primarily through the efforts of our senior
management and the program managers responsible for a particular account. To
date, we have secured most of our new sales leads and new contracts by expanding
relationships with existing customers and through referrals. Our program
managers serve as our customers' advocates within Lexent and are uniquely
positioned to cultivate additional business opportunities.
Our marketing strategy will focus on telecommunications companies,
including CLECs, Internet service providers and carriers' carriers, and will
reinforce to our target market that Lexent represents a complete local solution
for their multi-city outsourcing needs, combining technical expertise with
responsive, reliable and high quality service. We plan to implement this
campaign through the use of selective advertising and promotional strategies,
including the development of a web-based customer resource center.
EMPLOYEES
As of December 31, 1999, we had 841 employees, including 756 employees
working directly on projects, 47 employees providing supervision and support to
employees working directly on projects and 38 employees performing general and
administrative work. Approximately 650 of our employees are represented by a
labor union, the International Brotherhood of Electrical Workers or IBEW. We
have not experienced any work stoppages in the past 25 years and we believe that
our relationships with our employees and union representatives are excellent.
Recruiting. Our primary hiring sources for our engineers include employee
referrals, print advertising and direct recruiting. We attract and retain
employees by offering technical training opportunities, bonus opportunities, and
competitive salaries and benefits. We hire our unionized employees through local
chapters of the IBEW. In certain cases, we are able to sponsor qualified
technical personnel for union admission.
Training and Career Development. We believe that our continuous focus on
training and career development helps us to retain our employees. Employees
participate in ongoing educational programs, many of which are internally
developed, to enhance their technical and management skills through classroom
and field training. Manufacturers of telecommunications equipment also sponsor
training programs covering the installation and maintenance of their equipment,
which our employees regularly
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<PAGE> 37
attend. We also provide opportunities for promotion and mobility within Lexent
that we believe are key components of employee retention.
We believe our employee training, development and advancement structure
better aligns the interests of our employees with our interests and creates a
cooperative, entrepreneurial atmosphere and shared vision. We are dedicated to
maintaining an innovative, creative and empowering environment where we work as
a team to exceed the expectations of our customers and provide our employees
with personal and professional growth opportunities.
COMPETITION
Our market is highly competitive and fragmented and is served by numerous
vendors. Our primary competitors are often the internal departments of our
carrier customers as well as numerous companies which are able to provide
certain components of the package of services we offer. We compete with other
independent vendors and telecommunications equipment manufacturers in most of
the markets in which we operate, several of which are large companies and some
of which have greater financial, technical and marketing resources than we have.
In addition, there are relatively few barriers to entry into the markets in
which we operate and, as a result, any organization with adequate financial
resources and access to technical expertise and personnel may become our
competitor. We may also face competition from the in-house service organizations
of our existing or prospective customers, which employ personnel who perform
some of the same types of services we provide. Although a significant portion of
these services is currently outsourced, there can be no assurance that our
existing or prospective customers will continue to outsource their network
design, deployment, upgrade and maintenance services in the future.
We believe the principal competitive factors in our market include quality
and responsiveness of service, industry experience, reputation, the ability to
deliver results on time and competitive pricing. In addition, expertise in new
and evolving technologies, such as broadband fixed wireless, has become
increasingly important. We believe that we can compete effectively on the basis
of our experience and reputation in the industry, our knowledge of emerging
technologies, as well as equipment from multiple vendors, and our highly trained
workforce.
FACILITIES
We lease space at 16 separate locations throughout Maryland, Massachusetts,
New Jersey, New York and Pennsylvania. Of these locations, 2 are leased spaces
owned by entities affiliated with certain stockholders of our company. Our
principal executive offices are located in approximately 20,000 square feet of
office space at Three New York Plaza in New York, New York. The lease for this
office space expires in May 2004.
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. In addition, in
August 1999 a former employee filed a charge of employment discrimination
against us with the New York State Division of Human Rights and the Equal
Employment Opportunity Commission and has been granted a right to sue in federal
court. If suit is brought, our management is prepared to defend this claim
vigorously and believes that resolution of this claim will not have a material
adverse effect on our financial position or results of operations. However,
litigation is subject to inherent uncertainties, and an adverse result in this
or other matters may arise from time to time that may harm our business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Hugh J. O'Kane, Jr.(1)............ 49 Chairman of the Board
Alf T. Hansen..................... 57 President, Chief Executive Officer and Director
Kevin M. O'Kane................... 47 Vice Chairman and Chief Operating Officer
Jonathan H. Stern................. 55 Executive Vice President and Chief Financial Officer
Joseph Haines..................... 38 Executive Vice President, Operations
Victor P. DeJoy................... 31 Executive Vice President, Engineering
Rif K. Haffar..................... 44 Executive Vice President, Marketing and Business
Development
Walter C. Teagle III.............. 50 Executive Vice President and Director
Peter O. Crisp(2)................. 67 Director
Thomas W. Hallagan(1)(2).......... 38 Director
L. White Matthews(2).............. 54 Director
Richard W. Smith(1)............... 47 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Hugh J. O'Kane, Jr. has approximately 14 years experience in the
telecommunications industry and has been Chairman of the Board of Directors
since inception. From inception to February 2000, he also served as our
President and Chief Executive Officer. Prior to our founding, Mr. O'Kane held
various positions in our predecessor company, most recently as its President,
since joining his family's business in 1973. Mr. O'Kane holds a BS in finance
from Boston College.
Alf T. Hansen has approximately 33 years experience in the
telecommunications industry and has been our President and Chief Executive
Officer and a Director since February 2000. Prior to joining our company, Mr.
Hansen was VP Operations at AT&T Local Services since August 1998. Before that
he held various positions at Teleport Communications Group, or TCG, serving as
Senior Vice President -- Transition and Network Officer responsible for TCG's
merger with AT&T from January 1998 to August 1998, Senior Vice
President -- Emerging Markets from October 1997 to January 1998, Senior Vice
President -- National Operations from February 1993 through October 1997 and
Vice President -- National Operations from March 1989 through January 1993.
Prior to joining TCG, Mr. Hansen worked for AT&T for 22 years, where he had
assignments in Operations, Engineering, Sales and Public Relations.
Kevin M. O'Kane has approximately 14 years experience in the
telecommunications industry and has been our Chief Operating Officer and a
Director since our inception. In February 2000, he was appointed Vice Chairman
of our Board of Directors. He also serves as Secretary and Assistant Treasurer
of our company. Prior to our founding, Mr. O'Kane held various positions in our
predecessor company, most recently as its Vice President, since joining his
family's business in 1976. Mr. O'Kane holds a BS in accounting from Boston
College.
Jonathan H. Stern has approximately 18 years experience in the
telecommunications industry and has been Executive Vice President and Chief
Financial Officer since September 1998. Prior to joining our company, he served
as Vice President and Controller of International Specialty Products Inc., a
NYSE-listed chemical manufacturer since 1990. Prior to that, he was Vice
President and Controller of Western Union Corp., a telecommunications provider.
Mr. Stern holds a BA in economics from Brooklyn College and an MBA in finance
from New York University, and he is also a CPA.
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<PAGE> 39
Joseph Haines has approximately 17 years experience in the
telecommunications industry and has been the Executive Vice President of our
company in charge of network deployment, upgrading and maintenance services
since December 1999. Prior to joining our company, he served as Senior Vice
President of Engineering and Design at Network Plus Corp. since July 1998. From
1992 through July 1998, Mr. Haines held various positions with TCG, most
recently as its Regional Vice President of Operations.
Victor P. DeJoy has approximately nine years experience in the
telecommunications industry and has been the Executive Vice President of our
company in charge of design, engineering and program management services, since
December 1999. Prior to joining our company, he served as the Northeastern
Regional Vice President of Engineering and Operations at Nextlink Communications
since March 1998. From May 1992 through March 1998, Mr. DeJoy held various
positions with TCG, most recently as its Vice President of National Provisioning
Center. Mr. DeJoy holds a BS in Electrical Engineering from Rutgers College of
Engineering.
Rif K. Haffar has approximately 10 years experience in the
telecommunications industry and has been the Executive Vice President for
Marketing and Business Development of our company since January 2000. Prior to
joining our company, he served as Winstar Communications Inc.'s Senior Vice
President of the Partnership Management Organization since October 1998 and
Senior Vice President of Engineering and Operations from June 1996 to September
1998. Prior to joining Winstar, Mr. Haffar was Senior Vice President of Product
Development and Vice President of Operations with GST Telecom. Mr. Haffar holds
a BS and an MBA from Portland State University.
Walter C. Teagle III has approximately four years experience in the
telecommunications industry and has been a Director since September 1998 and has
served as an Executive Vice President since February 2000. From June 1999
through January 2000, Mr. Teagle was the President of our subsidiary National
Network Technologies, LLC. Prior to joining our company, Mr. Teagle was the
President and Chief Executive Officer of Metro Design Systems Inc., an
engineering and design firm which was acquired by us in September 1999. Mr.
Teagle also serves as a Director of the First of Long Island Corporation. Mr.
Teagle holds a BS in economics from the University of Maryland and an MBA in
finance from the University of Pennsylvania Wharton School.
Peter O. Crisp has been a Director since February 2000. Mr. Crisp was a
general partner of Venrock Associates, a venture capital investment firm, for
more than five years until his retirement in September 1997. He has been vice
chairman of Rockefeller Financial Services, Inc. since December 1997. Mr. Crisp
is also a director of American Superconductor Corporation, Evans & Sutherland
Computer Corporation, United States Trust Corporation, Thermo Electron
Corporation and several private companies. Mr. Crisp holds a BA from Yale
University and an MBA from the Harvard Graduate School of Business.
Thomas W. Hallagan has been a Director since July 1998. Since 1996, he has
served as a Managing Director of Abbott Capital Management and a general partner
of Abbott Capital 1330 Investors I, L.P. and Abbott Capital 1330 Investors II,
L.P., private equity limited partnerships. From 1991 to 1996, Mr. Hallagan was
employed by Aetna Investments. Prior to that, he was employed at Prudential
Capital Corporation and he worked for Deloitte Haskins & Sells. Mr. Hallagan is
a director of several private companies. He holds a BA in mathematics from
Colgate University, an MBA in finance and an MS in accounting from New York
University.
L. White Matthews has been a Director since September 1998. He has served
as Executive Vice President and Chief Financial Officer of Ecolab Inc., a global
developer of cleaning and sanitation products and services, since June 1999.
Prior to that, he held various positions with Union Pacific Corporation, most
recently, as its Chief Financial Officer. Mr. Matthews holds a BS from
Hampton-Sydney College and an MBA from the University of Virginia Darden School
of Business and General Management.
Richard W. Smith has been a Director since July 1998. He is an individual
general partner of the general partners of Allegra Capital Partners IV, L.P.,
Allegra Capital Partners III L.P., Lawrence, Tyrrell,
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Ortale & Smith II, L.P. and Lawrence, Tyrrell, Ortale & Smith, L.P., each a
venture capital investment firm. He is also Chairman of both Ixnet, Inc. and IPC
Communications, Inc. He is also a director of several private companies. Mr.
Smith co-authored the book Treasury Management: A Practitioner's Hand-Book. He
holds a BA from Harvard University.
Hugh J. O'Kane, Jr., the Chairman of our Board, and Kevin M. O'Kane, the
Vice Chairman of our Board and our Chief Operating Officer, are brothers.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors established an audit committee in January 1999. This
committee currently consists of Messrs. Matthews, Crisp and Hallagan. The audit
committee makes recommendations to the board of directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors and reviews and
evaluates our audit and control functions.
Our board of directors established a compensation committee in January
1999. This committee currently consists of Messrs. Hugh O'Kane, Hallagan and
Smith. The compensation committee reviews and recommends to the board of
directors the salaries, incentive compensation and benefits of our officers and
employees and administers our stock option plan and employee benefit plans.
COMPENSATION OF DIRECTORS
Prior to February 2000, each director who was not also an employee or an
affiliate of a principal stockholder of our company, was eligible to receive
options to purchase shares of our common stock under our stock option plan and
cash remuneration for specific actions they performed on our behalf. Each such
director received a fee of $1,500 per quarter for each quarter such director was
a member of the board. In addition, each such member received $750 for each
board meeting such member attended in person and $500 for each attended meeting
of a committee on which such member served. We also agreed to provide these
members a $1,000 per day fee in the event we imposed upon these members specific
advisory responsibilities outside the scope of the normal responsibilities of a
member of the board of directors and $500 for each board meeting attended
telephonically.
After February 2000, in addition to the cash remuneration described above,
these directors will receive options to purchase shares of common stock under
our stock option plan for each year such director is a member of our board and
options to purchase shares upon such director's initial election to our board.
The amount of each of these grants will be determined by the board or appointed
committee or committees on the date of grant. See "Employee Benefits
Plans -- Stock Option Plan -- Grants to Outside Directors."
During the fiscal year ended December 31, 1999, Messrs. Matthews and Teagle
were the only members of the board of directors eligible for any compensation
from our company. Effective June 1999, Mr. Teagle became an employee of our
company and is no longer eligible to receive compensation as a director. Upon
joining the board, Mr. Matthews received options to purchase 50,000 shares of
our common stock under our stock option plan. In total, Messrs. Matthews and
Teagle received cash fees of $10,000 and $8,250 from our company during fiscal
1999, respectively. None of this amount was in exchange for any advisory
responsibilities outside the scope of the normal responsibilities of a member of
the board of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to January 1999, all compensation decisions relating to our executive
officers were made solely by our board of directors. Upon formation of our
compensation committee and through December 31, 1999, the compensation committee
made recommendations regarding the compensation of our executive officers. Mr.
Hugh O'Kane, our Chairman and former President and Chief Executive Officer, has
been a member of the compensation committee since its formation. In addition,
Mr. Smith is a general partner of the general partner of each of the funds
affiliated with Allegra Capital Partners and Mr. Hallagan is a general partner
of Abbott Capital 1330 Investors I, L.P., and each may be deemed to have a
material interest in the matters described under "Certain Relationships and
Related Transactions."
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EXECUTIVE COMPENSATION
The following table summarizes the compensation for services rendered to us
during 1999 by our Chief Executive Officer and each of our other executive
officers who earned more than $100,000 in salary and bonus during the last
fiscal year. These individuals are referred to as the named executive officers.
The compensation described in this table does not include medical or other
benefits that are available generally to all of our salaried employees or
certain perquisites or other personal benefits received that do not exceed the
lesser of $50,000 or 10% of any such officer's salary and bonus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($)(1) OPTIONS(#) ($)
- --------------------------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Hugh J. O'Kane, Jr..................... 265,000 400,000 4,800 -- --
Chairman, President and Chief
Executive Officer
Kevin M. O'Kane........................ 265,000 400,000 4,800 -- --
Chief Operating Officer
Jonathan H. Stern...................... 205,100 50,000 4,800 -- --
Executive Vice President and Chief
Financial Officer
</TABLE>
- ---------------
(1) Compensation in this column reflects contributions made by us to our 401(k)
plan on behalf of each of the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, with respect to each of the named executive
officers, information regarding the number and value of securities underlying
unexercised options held by the named executive officers as of December 31,
1999. None of our named executive officers exercised options in 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Hugh J. O'Kane, Jr................... -- -- -- --
Kevin M. O'Kane...................... -- -- -- --
Jonathan H. Stern.................... 73,333 146,667
</TABLE>
In the table above, the value of unexercised in-the-money options is based
on the difference between the initial public offering price per share of
$ and the exercise price. The options granted to Mr. Stern were granted
under our stock option plan. These options vested as to the first 25% on the
first anniversary of the grant date and, as to the remaining portion, will vest
in equal monthly installments for the 36 months thereafter. Mr. Stern's options
were granted at an exercise price equal to the fair market value of our common
stock, as determined by the board of directors on the date of grant.
EMPLOYMENT ARRANGEMENTS
In July 1998, we entered into substantially similar employment agreements
with Hugh O'Kane and Kevin O'Kane. Under such agreements, Hugh O'Kane agreed to
initially serve as our President and Chief Operating Officer and Kevin O'Kane
agreed to initially serve as our Executive Vice President, and, in each
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<PAGE> 42
such case in such other capacity as requested by the board of directors through
July 2003. Each agreement shall be automatically renewed for successive one year
periods until terminated by either party. Pursuant to the agreements, both
employees are entitled to receive such salary and bonus as determined by the
board of directors which were initially set at $265,000 and $250,000, for each
respectively. In February 2000, these agreements were amended to provide each
individual an annual salary of $265,000 and an annual bonus of $300,000. In
connection with these amendments, each individual was granted options to
purchase 40,000 shares of common stock at an exercise price of $11.00 per share.
In the event either individual is terminated without cause, such individual is
entitled to receive severance payments equal to 100% of his base salary through
the end of his employment term.
In August 1998, we entered into an employment agreement with Mr. Stern to
which he agreed to serve as our Chief Financial Officer. Under this agreement,
Mr. Stern is paid base compensation in an amount not less than $205,100 per year
and a bonus of at least $50,000, subject to the achievement of targeted
objectives. In February 2000, the agreement was amended to provide Mr. Stern a
bonus of at least 40% of base salary in the event we achieve targeted
performance standards. Under his employment agreement, Mr. Stern received
options to purchase 220,000 shares of our common stock. If Mr. Stern's
employment is terminated without cause following a change of control of our
company, 100% of Mr. Stern's options are to become exercisable. In the event Mr.
Stern is terminated without cause, he is entitled to receive severance payments
equal to 100% of his base salary and continuation of benefits for six months.
In December 1999, we entered into substantially similar employment
agreements with each of Messrs. Haines, DeJoy and Haffar in which each agreed to
serve as an Executive Vice President through December 2003, December 2003 and
January 2004, respectively. In addition, under each of their agreements, Messrs.
Haines and DeJoy agreed to serve as presidents of our two subsidiaries. All such
agreements may be extended according to their terms. Under these agreements,
Messrs. Haines, DeJoy and Haffar are each paid compensation in amounts not less
than $240,000 per year and, in the event we achieve targeted performance
standards, are each entitled to receive bonuses of at least 40% of their base
salary. In addition, Messrs. Haines, DeJoy and Haffar received options to
purchase 350,000, 350,000 and 250,000 shares, respectively, of our common stock
at an exercise price of $10.00 per share upon execution of their respective
agreements. These options vested as to the first 100,000, 100,000 and 62,500
shares, respectively, on the date of grant to each employee and as to the
balance in equal monthly installments over the 36 months after the first
anniversary of the date of grant. Also, these individuals are eligible to
receive options to purchase at least 15,000, 15,000 and 10,000 shares,
respectively, of common stock each year at an exercise price equal to the fair
market value of our common stock on the date of grant. In the event any of these
employees are terminated without cause or terminates his employment for good
reason under the agreements, such employee is entitled to severance payments
equal to 100% of his base salary for varying periods up to but not exceeding 18
months.
In January 2000, we entered into an employment agreement with Mr. Hansen to
which Mr. Hansen agreed to serve as our President and Chief Executive Officer
through February 2003. Such agreement may be extended according to its terms.
Under the agreement, Mr. Hansen is paid compensation in an amount not less than
$300,000 per year and, in the event we achieve targeted performance standards,
is entitled to receive a bonus up to 100% of his base salary. In addition, upon
signing his employment agreement Mr. Hansen received options to purchase 830,000
shares of common stock at an exercise price of $10.00 per share. These options
vested as to the first 315,416 on the date of grant, and as to the balance in
equal monthly installments for the 24 months after the first anniversary of the
date of grant. Also, in the event the price of our common stock reaches certain
threshold levels, he is eligible to receive options to purchase at least 200,000
shares of common stock at the fair market value of our common stock on the date
of grant each year for the first two years of his employment term. Further, Mr.
Hansen, in the first 90 days of his employment with our company, can elect to
purchase up to 215,000 shares of our common stock at $10.00 per share. In the
event Mr. Hansen is terminated without cause or terminates his employment for
good reason under this agreement, he is entitled to receive severance payments
equal to 100% of his base salary for one year and continuation of benefits for
up to six months. In the event there is a change of
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<PAGE> 43
control of our company, we have agreed to accelerate the vesting of 100% of Mr.
Hansen's options and give Mr. Hansen the opportunity to resign from our company,
and have such resignation be for good reason. If any excise tax is imposed on
Mr. Hansen by reason of any of the payments or vesting made on a change of
control, we have agreed to gross up such payments to make Mr. Hansen whole.
EMPLOYEE BENEFIT PLANS
Stock Option Plan
In July 1998, our board of directors and stockholders approved our Stock
Option and Restricted Stock Purchase Plan. This plan was subsequently amended
and restated in February 2000. The purpose of the stock option plan is to
promote the interests of our company and our subsidiaries and the interests of
our stockholders by providing an opportunity to selected employees and officers
of both our company and those of our subsidiaries and to other persons providing
services to us to purchase our common stock. By encouraging such stock
ownership, we seek to attract, retain and motivate our employees and other
persons and to encourage those employees and other persons to devote their best
efforts to our business and financial success. The following summary describes
the principal features of the stock option plan as this plan has been amended
and restated and is qualified in its entirety by reference to the specific
provisions of the amended and restated stock option plan, which is filed as an
exhibit to the registration statement of which this prospectus forms a part.
Shares and Options Subject to the Plan. The plan provides for the grant of
options or awards to purchase an aggregate 5,800,000 shares of our common stock,
either in the form of incentive stock options intended to meet the requirements
of Section 422 of the Code, as amended, or non-qualified stock options or
restricted stock purchase awards. The plan includes provisions for adjustment of
the number of shares of common stock available for grant or award thereunder and
in the number of shares of common stock underlying outstanding options in the
event of any stock splits, stock dividends or other relevant changes in our
capitalization.
Eligibility. Under the plan, employees, including officers, are eligible
to receive grants of either incentive stock options structured to qualify under
Section 422 of the Code, or non-qualified stock options and restricted stock
purchase awards, both of which are not intended to meet the requirements of Code
Section 422. Non-employees are eligible to be granted only non-qualified options
and awards.
Administration. The plan has been administered by our board of directors.
However, the board has the right to appoint one or more committees to administer
the plan. Each administering committee must consist of at least two members of
the board. To the extent that transactions under the plan are intended to
qualify as exempt from Rule 16b-3 of the Exchange Act, the administering
committee as to those transactions will consist of entirely "Non-Employee
Directors" within the meaning of the Exchange Act. To the extent that grants
under the plan are intended to qualify as "performance-based compensation"
within the meaning of the Code, the administering committee as to those grants
must consist of entirely "outside directors" within the meaning of the Code. All
questions of interpretation or application of the stock option plan are
determined by the board of directors or administering committee or committees so
appointed, whose decisions are final and binding upon all participants.
Terms of Options and Awards. Each option or award granted will be
evidenced by a stock option or restricted stock purchase agreement. The board or
appointed committee or committees will fix the term and vesting provisions of
all options granted pursuant to the plan. Options granted under the plan, other
than those granted to outside directors as discussed below, generally vest as to
25% on the first anniversary of the grant date, and, as to the remaining
portion, in equal monthly installments for the 36 months thereafter. These
options generally provide for acceleration of vesting as to at least 50% of the
unexercised portion on a change in control of our company.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the shares of common stock, as determined by the board
or appointed committee or committees, as the case may be, on the date the option
is granted. In addition, the aggregate fair market value of the shares
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<PAGE> 44
of stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000. In
addition, no incentive stock option shall be granted to an optionee who owns
more than 10% of the total combined voting power of all classes of stock of our
company, unless the exercise price is at least 110% of the fair market value of
the shares of common stock and the exercise period does not exceed 5 years.
Restricted stock purchase awards granted under the plan will be in amounts
and at times as determined by the board or appointed committee or committees.
The purchase price, as well as the vesting provisions, of awards will be
determined by the board or committee and the purchase price may be equal to,
less than or more than the fair market value of the shares of common stock to be
awarded.
Grants to Outside Directors. Directors who are not employees of our
company or affiliates of our principal stockholders will receive options under
the plan. Each eligible director will receive options to purchase shares of our
common stock upon such director's initial election to the board and additional
options to purchase shares for each year such director remains a member of the
board of directors. The amount of each of these grants will be determined by the
board or appointed committee or committees on the date of grant provided that no
director may receive options to purchase more than 500,000 shares of our common
stock in any calendar year.
The options granted to these directors will be non-qualified stock options.
Such options will have 10 year terms and will terminate three months following
the date the director ceases to be a director or consultant or 12 months if the
termination is due to death or disability. In the event of our dissolution or
liquidation or change in control, these options will become 100% vested and
exercisable in full.
Term of the Stock Option Plan. The plan will continue in effect until July
2008 unless terminated prior to such date by the board.
401(k) Plan
We have adopted the Vanguard Prototype 401(k) Savings Plan, a defined
contribution plan intended to qualify under Section 401 of the Code. All of our
employees not otherwise subject to collective bargaining agreements are eligible
to participate and may enter the 401(k) Plan as of the first day of any month.
Employees participating in the plan may make pre-tax contributions to the 401(k)
Plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. We make annual contributions to the 401(k) Plan in the
amount of 3% of each participant's salary up to the prescribed annual limit. Our
contributions vest annually over the related employee's first five years of
service. Each employee's contributions, our corresponding contributions and any
investment earnings, are generally not taxable to the participants until
withdrawn. Employee contributions are held in trust as required by law.
Individual participants may direct the trustee to invest their accounts in
authorized investment alternatives.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY
Our bylaws provide that we shall indemnify our directors, officers and
their agents to the fullest extent permitted by the Delaware General Corporation
Law or DGCL. We are also empowered under our bylaws to purchase insurance on
behalf of any director, officer, employee or agent whether or not we would be
required to indemnify this person. Pursuant to this provision, we have entered
into indemnification agreements with each of our directors and executive
officers.
In addition, our second restated certificate of incorporation to be
effective upon consummation of this offering provides that our directors will
not be personally liable to us or our stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omission not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the DGCL; or
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<PAGE> 45
- for any transaction from which the director derives an improper personal
benefit.
Our second restated certificate of incorporation also provides that if,
after the approval by our stockholders of our second restated certificate of
incorporation, the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of our directors shall be eliminated or limited to the fullest extent permitted
by the DGCL. This provision does not affect a director's responsibilities under
any other law, including the federal securities laws or state or federal
environmental laws.
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<PAGE> 46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of relationships and transactions for the
last three fiscal years to which we have been a party, in which amounts involved
exceed $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest, other than our compensation arrangements with our directors and named
executive officers that are described under "Management."
On January 1, 1997, Hugh O'Kane Electric Co., Inc., our predecessor
company, repurchased common shares owned by Denis J. O'Kane, a stockholder and
brother of each of Hugh J. O'Kane, Jr., our Chairman, and Kevin M. O'Kane, our
Vice Chairman and Chief Operating Officer. In consideration for the repurchase,
Denis O'Kane was issued a subordinated promissory note in the amount of $10.2
million. The note bears interest at the rate of 6% per year. We made the first
payment on the note on July 23, 1998 in connection with the merger of Hugh
O'Kane Electric Co., Inc. with and into our company. The payment was for $1.5
million plus accrued interest. The remaining balance is payable in 22 quarterly
installments of $0.4 million plus accrued interest with the final payment due
January 1, 2004. As of December 31, 1999, the outstanding principal balance of
this note was $6.7 million.
On July 20, 1998, as an inducement to his execution of the merger agreement
in which Hugh O'Kane Electric Co., Inc. merged with and into our company, we
executed an agreement with Hugh O'Kane Electric Co., Inc. and Denis J. O'Kane.
Under this agreement, we agreed to provide Denis O'Kane with a new automobile
every three years for as long as he remains a stockholder of our company and
lifetime medical, dental and life insurance benefits consistent with his
then-existing coverage. See Note 5 of Notes to Consolidated Financial
Statements.
On July 23, 1998, we sold 5,538,458 shares of Series A redeemable
convertible preferred stock at a purchase price of $2.07639 per share to
entities affiliated with Allegra Capital Partners and Abbott Capital Management,
who each held more than 5% of our outstanding capital stock prior to this
offering. Mr. Smith, a member of our board, is a general partner of the general
partner of each of the funds affiliated with Allegra Capital Partners. Mr.
Hallagan, also a member of our board, is a general partner of Abbott Capital
1330 Investors I, L.P. Upon the closing of this offering, each share of
redeemable convertible preferred stock will automatically convert into 1.1814
shares of common stock. All securities sold or purchased in this transaction
were sold or purchased at prices equal to the fair market value of the
securities, as determined by our board of directors, on the date of issuance.
Holders of shares of our common stock issued in connection with the
conversion of the redeemable convertible preferred stock and in connection with
the merger of our predecessor company with and into our company, may require us
to register such shares at our expense. For a description of such registration
rights, see "Description of Capital Stock -- Registration Rights."
On July 23, 1998, as a finders fee in connection with our redeemable
convertible preferred stock financing, we issued non-qualified options to
purchase 110,000 shares of our common stock under our stock option plan to
Walter C. Teagle III, an Executive Vice President and member of our board of
directors. These options were immediately exercisable by Mr. Teagle. On December
22, 1999, we issued 110,000 shares of common stock to Mr. Teagle in connection
with his exercise of these stock options.
On September 24, 1998, we issued non-qualified options to purchase 50,000
shares of our common stock under our stock option plan to L. White Matthews, a
member of our board of directors. These options vested as to 50% upon the first
anniversary of the grant date and vest in equal monthly installments for the 36
months thereafter. On December 22, 1999, we issued 25,000 shares of common stock
to Mr. Matthews in connection with his exercise of 50% of these stock options.
On June 1, 1999, we issued incentive stock options to purchase 270,000
shares of our common stock under our stock option plan to Mr. Teagle. These
options were issued to Mr. Teagle at the fair market value of our common stock,
as determined by our board of directors, on the date of grant.
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<PAGE> 47
On January 21, 2000, we issued non-qualified options to purchase 25,000
shares of our common stock to Peter O. Crisp, a member of our board of
directors. These options vested as to 50% on the date of grant. The remainder
vests in equal monthly installments for the 24 months after the first
anniversary of the date of grant. In addition, on February 17, 2000, Mr. Crisp
purchased 20,000 shares of our common stock at a purchase price of $10.00 per
share.
On February 11, 2000, Hugh O'Kane, Jr. and Kevin O'Kane entered into an
agreement to grant each the right to vote the shares of the other in the event
of either individual's death. This agreement provides that the right to vote
will remain with the surviving brother for three years or until his death or a
sale of the related shares in a public offering or sale authorized by Rule 144
under the Securities Act.
Mr. Teagle receives a base salary equal to $175,000 per year. In addition,
Mr. Teagle received a bonus of $175,000 for 1999 and will receive a bonus of
$200,000 for 2000.
Mr. Hugh J. O'Kane, Sr., father of Hugh O'Kane, Jr., Kevin O'Kane and Denis
O'Kane, receives $75,000 per year as a pension for his role as founder of our
predecessor company. This payment will be made to Mr. O'Kane's spouse for the
remainder of her life in the event of his death.
Kevin O'Kane is a co-trustee of the Hugh J. O'Kane, Jr. 2000 Grantor
Retained Annuity Trust which holds 1,400,000 shares for the benefit of Hugh
O'Kane's family.
In 1998 and 1999, we purchased services amounting to $0.5 million and $1.4
million, respectively, from Metro Design Systems, Inc., a company which was
owned by Hugh O'Kane, Jr., Kevin O'Kane, Denis O'Kane and Walter Teagle. During
such times, Hugh O'Kane, Jr., Kevin O'Kane and Mr. Teagle were directors of our
company and Hugh O'Kane, Jr. and Kevin O'Kane held more than 5% of our
outstanding capital stock. We believe the costs for the services provided by
Metro Design Systems, Inc. would have been incurred regardless of whether such
services had been purchased from a non-affiliated entity. In September 1999, we
purchased the equipment, business name and goodwill of Metro Design Systems,
Inc. for $0.2 million. The purchase price was paid in cash to Metro Design
Systems, Inc. and we believe the price was equal to the fair market value of the
purchased assets.
From time to time prior to this offering, we have borrowed funds from Hugh
O'Kane, Jr. and Kevin O'Kane to fund our working capital requirements. In
connection with this, we periodically make repayment of such advances. At
December 31, 1999, the amounts we owed to Hugh and Kevin O'Kane collectively
amounted to $0.6 million, of which $0.4 million is subordinated to all senior
debt. Such amounts bear interest at the rate of 6% but there are no formal
repayment terms.
We lease two of our facilities from entities owned by Hugh, Kevin and Denis
O'Kane. Annual rentals for office and warehouse premises at 88-90 White Street
in New York, NY are $0.3 million for calendar years 1998 through 2001, and $0.4
million for calendar year 2002. Annual rentals for office and warehouse premises
in South Plainfield, NJ are $0.1 million for the twelve-month periods April
through March, commencing April 1998 and ending March 2008.
While we were an S corporation, we made cash distributions to stockholders
of approximately $0.2 million in 1997 and $5.1 million in 1998.
Between July 1998 and January 2000, our company signed various employment
agreements with each member of our senior management team. For a description of
such agreements, see "Management -- Employment Arrangements."
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<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our common stock before and after our initial public offering for:
- each person who beneficially owns more than five percent of the common
stock;
- each of our directors;
- the named executive officers; and
- all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentage of beneficial
ownership is based on 22,173,108 shares of common stock outstanding as of
February 17, 2000, as adjusted to reflect the conversion of all outstanding
shares of preferred stock upon the closing of this offering and shares
of common stock outstanding after completion of this offering. Fractional shares
have been rounded to the nearest whole number.
The table assumes no exercise of the underwriters' over-allotment option.
If the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of additional shares of our common stock, and up
to shares of common stock will be outstanding after the completion of
this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING
- --------------------------------------- ---------------- -------- --------
<S> <C> <C> <C>
Kevin M. O'Kane(2)........................................ 8,403,692 37.88%
Hugh J. O'Kane, Jr.(3).................................... 7,003,692 31.57
Abbott Capital 1330 Investors I, L.P.(4).................. 4,551,709 20.53
1330 Avenue of the Americas, Suite 2800
New York, New York 10019
Allegra Capital Partners III, L.P.(5)..................... 2,291,373 10.33
515 Madison Avenue -- 29th Floor
New York, New York 10022
Alf T. Hansen(6).......................................... 530,416 2.35
Jonathan H. Stern(7)...................................... 87,083 *
Walter C. Teagle III(8)................................... 245,000 1.10
Peter O. Crisp(9)......................................... 32,500 *
Thomas W. Hallagan(10).................................... 4,551,709 20.53
L. White Matthews(11)..................................... 29,167 *
Richard W. Smith(12)...................................... 2,291,373 10.33
All current directors and executive officers as a group
(12 persons)(13)........................................ 22,037,134 95.96
</TABLE>
- ---------------
* represents beneficial ownership of less than 1%.
(1) Unless otherwise indicated, the address for each person or entity named
above is c/o Lexent Inc., Three New York Plaza, New York, New York 10004.
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<PAGE> 49
(2) Includes 12,730 shares subject to options exercisable within 60 days of
February 17, 2000, an aggregate 400,000 shares held in trust for Kevin
O'Kane's children for which Mr. O'Kane is co-trustee and 1,400,000 shares
held in trust for Hugh O'Kane's family for which Mr. O'Kane is co-trustee.
(3) Includes 12,730 shares subject to options exercisable within 60 days of
February 17, 2000, an aggregate 400,000 shares held in trust for Hugh
O'Kane's children for which Mr. O'Kane is co-trustee and 1,400,000 shares
held in trust for Hugh O'Kane's family for which Mr. O'Kane's wife is
co-trustee.
(4) Thomas Hallagan, one of our directors, is a general partner of Abbott
Capital 1330 Investors I, L.P. Mr. Hallagan disclaims beneficial ownership
of the shares held by this entity.
(5) Includes 227,500 shares held by Allegra Capital Partners IV, L.P. Richard
Smith, one of our directors, is a general partner of the general partner of
each of the venture capital funds affiliated with Allegra Capital Partners.
Mr. Smith disclaims beneficial ownership of the shares held by Allegra
Capital Partners III, L.P. and Allegra Capital Partners IV, L.P.
(6) Includes 150,416 shares subject to options exercisable within 60 days of
February 17, 2000 and 215,000 shares subject to purchase by Mr. Hansen
under the terms of his employment agreement.
(7) All shares subject to options exercisable within 60 days of February 17,
2000.
(8) Includes 135,000 shares subject to options exercisable within 60 days of
February 17, 2000.
(9) Includes 12,500 shares subject to options exercisable within 60 days of
February 17, 2000.
(10) All shares held by Abbott Capital 1330 Investors I, L.P. Mr. Hallagan is a
general partner of this venture capital fund affiliated with Abbott Capital
Management and disclaims beneficial ownership of the shares held by this
entity.
(11) Includes 4,167 shares subject to options exercisable within 60 days of
February 17, 2000.
(12) Includes 2,063,873 shares held by Allegra Capital Partners III, L.P. and
227,500 shares held by Allegra Capital Partners IV, L.P. Mr. Smith is a
general partner of the general partner of each of the venture capital funds
affiliated with Allegra Capital Partners and disclaims beneficial ownership
of the shares held by these entities.
(13) Includes 792,126 shares subject to options exercisable within 60 days of
February 17, 2000.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
Immediately prior to the closing of this offering and effective upon the
filing of our second amended and restated certificate of incorporation, our
authorized capital stock will consist of shares of common stock, $0.001 par
value per share, and shares of preferred stock, $0.001 par value per share.
As of February 17, 2000, after giving effect to the conversion of all
outstanding redeemable convertible preferred stock into common stock upon the
closing of this offering, there were outstanding 22,173,108 shares of common
stock held of record by 20 stockholders.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of our
liquidation, dissolution or winding down, holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into 6,543,083 shares of common stock. See Note 10 of
Notes to Consolidated Financial Statements for a description of the currently
outstanding redeemable convertible preferred stock. Following the conversion,
our restated certificate of incorporation will be amended and restated to delete
all references to these shares of redeemable convertible preferred stock. Under
our second restated certificate of incorporation, the board has the authority,
without further action by stockholders, to issue up to shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges, qualifications and restrictions granted to or imposed upon such
preferred stock, including dividend rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preference and sinking fund terms,
any or all of which may be greater than the rights of the common stock. The
issuance of preferred stock could adversely affect the voting power of holders
of common stock and reduce the likelihood that such holders will receive
dividend payments and payments upon liquidation. The issuance could have the
effect of decreasing the market price of the common stock. The issuance of
preferred stock could have the effect of delaying, deterring or preventing a
change in control of our company. We have no present plans to issue any shares
of preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of 6,615,583 shares of common stock will
be entitled to various rights with respect to the registration of such shares
under the Securities Act due to the Registration Rights Agreement, dated as of
July 23, 1998. Under the terms of this agreement, if we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, the
holders are entitled to notice of the registrations and are entitled, subject to
limitations, to include shares in the registration. Holders representing not
less than one third of the restricted shares then outstanding may require us to
file a registration statement under the Securities Act with respect to their
shares on two occasions, and we are required to use our best efforts to complete
the registration. Further, the holders may require us to register their shares
on Form S-3 when such form
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<PAGE> 51
becomes available to us. Generally, we are required to bear all registration
expenses incurred in connection with any such registrations, other than any
underwriting discounts and selling commissions. These rights are subject to
conditions and limitations, among them, the right of the underwriters of an
offering to limit the number of shares included in a registration. Pursuant to
agreements with the underwriters of this offering, the holders entitled to these
various registration rights have agreed to waive such rights for 180 days
following the date of this prospectus.
ANTI-TAKEOVER MEASURES
Delaware Law
We are governed by the provisions of Section 203 of the DGCL. In general,
Section 203 prohibits a public 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:
- prior to the business combination our board of directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such stockholder owned at least 85%
of our outstanding voting stock at the time such transaction commenced,
excluding for the purpose of determining the number of shares outstanding
those shares owned:
-- by our officers and directors and
-- by employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
- at or subsequent to such time the business combination is approved by our
board of directors and authorized at an annual or special meeting of our
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of our outstanding voting stock which is not owned by the
interested stockholder.
A "business combination" includes mergers, asset sales or other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years did own) 15% or more of the corporation's voting stock. The
statute could have the effect of delaying, deferring or preventing a charge in
our control or reducing the price that some investors might be willing to pay in
the future for our common stock.
Charter and Bylaw Provisions
Our second restated certificate of incorporation to be effective upon
consummation of the offering provides that any action required or permitted to
be taken by our stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. In
addition, our bylaws restrict the ability of our stockholders to call a special
meeting of stockholders. Our second restated certificate of incorporation also
specifies that our board of directors will be classified, the authorized number
of directors may be changed only by resolution of the board of directors and
does not include a provision for cumulative voting for directors. Under
cumulative voting, a minority stockholder holding a sufficient percentage of a
class of shares may be able to ensure the election of one or more directors.
These and other provisions contained in our second restated certificate of
incorporation and
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<PAGE> 52
bylaws could delay or discourage certain types of transactions involving an
actual or potential change in control of us or our management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices) and may limit the ability of stockholders to
remove current management or approve transactions that stockholders may deem to
be in their best interests and, therefore, could adversely affect the price of
our common stock.
THE NASDAQ STOCK MARKET'S NATIONAL MARKET
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "LXNT."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
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<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. As described below, no shares
currently outstanding will be available for sale immediately after this offering
due to certain contractual restrictions on resale. Sales of substantial amounts
of our common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, all of the
shares sold in this offering will be freely tradable and transferable without
restriction under the Securities Act unless purchased by our affiliates.
The remaining shares of common stock held by existing stockholders
are restricted securities. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
described below under Rules 144, 144(k) or 701 promulgated under the Securities
Act.
As a result of the lock-up agreements, described below, and the provisions
of Rules 144, 144(k) and 701 described below, these restricted shares will be
available for sale in the public market as follows:
- shares may be sold prior to 180 days from the date of this
prospectus;
- shares will have been held long enough to be sold under Rule 144
or Rule 701 beginning 181 days after the effective date of this offering
which we expect to be ; and
- the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
Lock-Up Agreements. Certain of our stockholders and option holders have
agreed not to transfer or dispose of, directly or indirectly, any shares of our
common stock or any securities convertible into or exercisable or exchangeable
for shares of our common stock, for a period of 180 days after the date of this
prospectus. Transfers or dispositions can be made sooner with the prior written
consent of Credit Suisse First Boston Corporation.
Rule 144. In general, under Rule 144, a person who has beneficially owned
restricted securities 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 number of shares of our common stock then outstanding which
will equal approximately 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 the sale.
Sales under Rule 144 are also subject to manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). However, a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed above.
Rule 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchases or receives shares from us in connection with a
compensatory stock purchase plan or option plan or other written agreement will
be eligible to resell their shares beginning 90 days after the date of this
prospectus. Non-affiliates will be able to sell their shares subject only to the
manner-of-sale provisions of Rule 144.
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<PAGE> 54
Affiliates will be able to sell their shares without compliance with the holding
period requirements of Rule 144.
Registration Rights. Upon completion of this offering, the holders of
6,615,583 shares of our common stock will be entitled to rights with respect to
the registration of their shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Pursuant to agreements with underwriters
of this offering, the holders entitled to registration rights agreed to waive
those rights for 180 days following the date of this prospectus. Except for
shares purchased by affiliates, registration of their shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of the
registration.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering approximately
shares for sale upon the exercise of outstanding stock options or
shares reserved for future issuance pursuant to our stock option plan. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market beginning 180
days after the effective date of the registration statement of which this
prospectus is a part.
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UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Chase Securities
Inc. and Raymond James & Associates, Inc. are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Chase Securities Inc. ......................................
Raymond James & Associates, Inc. ...........................
--------
Total.....................................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............
Expenses payable by us..............
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
Our officers and directors and certain other stockholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a transaction which would have the same effect, or enter into any swap,
hedge or other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge
52
<PAGE> 56
or disposition, or to enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock offered hereby for employees,
directors and certain other persons associated with us who have expressed an
interest in purchasing common stock in the offering. 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 the reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our common stock on the Nasdaq National Market
under the symbol "LXNT."
Before this offering, there has been no public market for the common stock.
The initial public offering price was determined by negotiation between the
underwriters and us. The principal factors considered in determining the public
offering price included the following:
- the information set forth in this prospectus;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
A pricing committee of our board of directors established the initial public
offering price following such negotiations.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
- Over-allotment involves syndicate sales in excess of this offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of our common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
53
<PAGE> 57
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws, which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (i) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named herein may
be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon us or these
persons. All or a substantial portion of the assets of our company and these
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against our company or these persons in Canada or
to enforce a judgment obtained in Canadian courts against our company or these
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors for the tax consequences of an investment in the common stock in their
particular circumstances and for the eligibility of the common stock for
investment by the purchaser under relevant Canadian legislation.
54
<PAGE> 58
LEGAL MATTERS
Reboul, MacMurray, Hewitt, Maynard & Kristol will pass upon the validity of
the shares of common stock offered by this prospectus and certain other legal
matters. Simpson Thacher & Bartlett will pass upon certain legal matters for the
underwriters.
EXPERTS
The consolidated financial statements of Lexent Inc. and its subsidiaries
as of December 31, 1998, and 1999 and for each of the three years in the period
ended December 31, 1999 have been included herein and in the registration
statement in reliance upon the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, with respect to the common stock
offered by this prospectus. As permitted by the rules and regulations of the
Commission, this prospectus, which is a part of the registration statement,
omits certain information, exhibits, schedules and undertakings set forth in the
registration statement. For further information pertaining to our company and
the common stock offered hereby, reference is made to such registration
statement and the exhibits and schedules thereto. Statements contained in this
prospectus as to the contents or provisions of any contract or other document
filed as an exhibit referred to herein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. A copy of the registration statement may be
inspected without charge at the office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of all or any part of the registration statement may be obtained
from such offices upon the payment of the fees prescribed by the SEC. For
further information, please call the SEC at 1-800-SEC-0330. In addition,
registration statements and certain other filings made with the commission
through its Electronic Data Gathering, Analysis and Retrieval system, including
our registration statement and all exhibits and amendments to our registration
statements, are publicly available through the Commission's Website at
http://www.sec.gov.
As a result of this offering we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
55
<PAGE> 59
LEXENT INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999........................................................ F-3
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1998 and 1999............................ F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999............................ F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Years Ended December 31, 1997, 1998 and
1999........................................................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lexent Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Lexent Inc. and Subsidiaries at December 31, 1999 and December 31, 1998, 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 1, 2000
F-2
<PAGE> 61
LEXENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash...................................................... $ 1,495 $ 1,158
Receivables, net.......................................... 26,342 48,748
Prepaid expenses and other assets......................... 535 156
Deferred tax asset, net................................... 1,696 2,748
------- -------
Total current assets................................... 30,068 52,810
------- -------
Property and equipment, net................................. 2,087 6,180
Other assets................................................ 154 545
------- -------
Total assets........................................... $32,309 $59,535
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Accounts payable.......................................... $ 5,369 $ 8,434
Accrued liabilities....................................... 4,149 9,700
Income taxes payable...................................... 3,076 5,711
Billings in excess of costs and estimated earnings on
uncompleted projects................................... 306 1,084
Notes payable to bank..................................... 4,500 --
Subordinated notes payable to stockholder................. 1,582 1,582
Equipment and capital lease obligations................... 384 1,014
Due to related parties.................................... 11 432
------- -------
Total current liabilities.............................. 19,377 27,957
------- -------
Subordinated notes payable to stockholders.................. 7,114 5,533
Notes payable to banks...................................... -- 8,841
Equipment and capital lease obligations..................... 405 1,842
------- -------
Total liabilities...................................... 26,896 44,173
------- -------
Commitments and contingencies
Redeemable convertible preferred stock at stated liquidation
preference of $2.131 per share at 1998 and $2.2553 per
share at 1999, $.001 par value, 5,538,458 shares
authorized, issued and outstanding........................ 11,801 12,491
------- -------
Stockholders' equity (deficit):
Common stock, $.001 par value, 44,461,542 shares
authorized, 15,144,400 and 15,279,400 shares
outstanding at 1998 and 1999, respectively............. 15 16
Additional paid-in capital................................ 1,804 2,496
Retained earnings (accumulated deficit)................... (8,207) 359
------- -------
Total stockholders' equity (deficit)................... (6,388) 2,871
------- -------
Total liabilities and stockholders' equity............. $32,309 $59,535
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 62
LEXENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenues.................................................... $53,718 $70,959 $150,862
Cost of revenues............................................ 43,226 56,497 120,750
General, administrative and marketing expenses.............. 6,992 7,945 11,750
------- ------- --------
Operating income............................................ 3,500 6,517 18,362
Interest expense............................................ 1,151 1,143 1,104
Other expense, net.......................................... 9 166 27
------- ------- --------
Income before income taxes.................................. 2,340 5,208 17,231
Provision for income taxes.................................. 151 1,380 7,975
------- ------- --------
Net income.................................................. $ 2,189 $ 3,828 $ 9,256
======= ======= ========
Net income per share:
Basic..................................................... $ 0.14 $ 0.23 $ 0.57
======= ======= ========
Diluted................................................... $ 0.14 $ 0.22 $ 0.42
======= ======= ========
Weighted average common shares outstanding:
Basic..................................................... 15,144 15,144 15,147
======= ======= ========
Diluted................................................... 15,144 17,593 21,862
======= ======= ========
Pro forma information (unaudited):
Income before income taxes................................ $ 2,340 $ 5,208
Pro forma provision for income taxes...................... 1,053 2,344
------- -------
Pro forma net income...................................... $ 1,287 $ 2,864
======= =======
Pro forma net income per common share (unaudited):
Basic..................................................... $ 0.08 $ 0.16 $ 0.43
======= ======= ========
Diluted................................................... $ 0.08 $ 0.16 $ 0.41
======= ======= ========
Pro forma weighted average common shares outstanding:
Basic..................................................... 15,144 18,016 21,690
======= ======= ========
Diluted................................................... 15,144 18,016 22,578
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
LEXENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,189 $ 3,828 $ 9,256
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for uncollectible amounts, net................ (102) 1,096 1,812
Depreciation and amortization........................... 510 779 1,495
Loss on disposition of assets........................... -- 42 71
Stock option compensation expense....................... -- -- 43
Provision for deferred taxes............................ -- (1,696) (1,052)
Changes in working capital items:
Accounts receivable including unbilled receivables
and costs of uncompleted projects.................. 1,924 (13,854) (24,218)
Prepaid expenses and other assets.................... (244) (1) (12)
Accounts payable..................................... 962 658 3,065
Accrued liabilities.................................. 433 2,613 5,464
Income taxes payable................................. (147) 3,012 3,304
Billings in excess of costs and estimated earnings on
uncompleted projects............................... (947) 110 778
------- -------- --------
Net cash provided by (used in) operating
activities....................................... 4,578 (3,413) 6
------- -------- --------
Cash flows from investing activities:
Acquisitions of property, plant and equipment, net of
equipment loans and capital leases...................... (414) (910) (2,908)
------- -------- --------
Net cash used in investing activities.............. (414) (910) (2,908)
------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock..... -- 11,500 --
Proceeds from stock options exercised..................... -- -- 68
Issuance costs of convertible preferred stock............. -- (339) --
Proceeds from subordinated notes payable to
shareholders............................................ -- 388 --
Repayment of subordinated notes payable to shareholder.... -- (1,902) (1,581)
Borrowings under revolving credit agreement............... 100 -- 8,841
Repayment of notes payable to bank........................ -- -- (4,500)
Dividends and distributions to common shareholders........ (212) (5,138) --
Net borrowings from (payments to) related parties......... (3,022) (599) 421
Repayment of equipment loans and capital leases........... (243) (404) (684)
------- -------- --------
Net cash provided by (used in) financing
activities....................................... (3,377) 3,506 2,565
------- -------- --------
Net increase (decrease) in cash............................. 787 (817) (337)
Cash at beginning of year................................... 1,525 2,312 1,495
------- -------- --------
Cash at end of year......................................... $ 2,312 $ 1,495 $ 1,158
======= ======== ========
Supplemental cash flow information:
Cash paid for:
Interest................................................ $ 518 $ 1,626 $ 1,009
Income taxes............................................ 288 252 3,532
Supplemental disclosures of noncash investing and financing
activities:
Property, plant and equipment additions financed by
equipment loans and capital leases...................... $ 423 $ 443 $ 2,751
Note payable issued to acquire treasury stock............. 10,210 -- --
Cancellation of treasury shares due to merger............. -- 8,818 --
Adjustment to common shares due to merger................. -- 85 --
Distributions to common shareholders included in due to
related parties......................................... 238 -- --
Accrued dividends on preferred shares..................... -- 301 690
Tax benefit from exercise of nonqualified stock options... -- -- 582
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
LEXENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
# SHARES ------------------------------------------------------------------------
REDEEMABLE REDEEMABLE RETAINED
CONVERTIBLE CONVERTIBLE # SHARES ADDITIONAL EARNINGS TREASURY TOTAL
PREFERRED PREFERRED COMMON COMMON PAID-IN (ACCUMULATED STOCK, STOCKHOLDERS'
STOCK STOCK STOCK STOCK CAPITAL DEFICIT) AT COST EQUITY
----------- ----------- -------- ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997.... -- $ -- 15,144 $100 $ -- $ 3,786 $ (91) $ 3,795
Purchase of common stock
(14.5 shares)............ -- -- -- -- -- (1,483) (8,727) (10,210)
Distributions to common
stockholders............. -- -- -- -- -- (450) -- (450)
Net income................. -- -- -- -- -- 2,189 -- 2,189
----- ------- ------ ---- ------ ------- ------- --------
Balance at December 31,
1997..................... -- $ -- 15,144 $100 $ -- $ 4,042 $(8,818) $ (4,676)
Conversion of Hugh O'Kane
Electric Co. Inc. common
shares into Lexent Inc.
common shares............ -- -- -- (85) -- 85 -- --
Cancellation of treasury
stock due to merger of
Hugh O'Kane Electric Co.
Inc. into Lexent Inc..... -- -- -- -- -- (8,818) 8,818 --
Dividends declared to
common stockholders...... -- -- -- -- -- (4,900) -- (4,900)
Net income January 1, 1998
through July 23, 1998.... -- -- -- -- -- 1,804 -- 1,804
Transfer of undistributed
retained earnings to
additional paid-in
capital upon termination
of S Corporation
election................. -- -- -- -- 1,804 (1,804) -- --
Issuance of 5,538,458
redeemable convertible
preferred shares at
$2.07639 per share....... 5,538 11,500 -- -- -- -- -- --
Cost of issuing preferred
shares................... -- -- -- -- -- (339) -- (339)
Dividends accrued on
preferred shares......... -- 301 -- -- -- (301) -- (301)
Net income July 24, 1998
through December 31,
1998..................... -- -- -- -- -- 2,024 -- 2,024
----- ------- ------ ---- ------ ------- ------- --------
Balance at December 31,
1998..................... 5,538 $11,801 15,144 $ 15 $1,804 $(8,207) $ -- $ (6,388)
Issuance of 135,000 common
shares................... -- -- 135 1 67 -- -- 68
Tax benefit from exercise
of nonqualified stock
options.................. -- -- -- -- 582 -- -- 582
Stock option compensation
expense.................. -- -- -- -- 43 -- -- 43
Dividends accrued on
preferred shares......... -- 690 -- -- -- (690) -- (690)
Net income................. -- -- -- -- -- 9,256 -- 9,256
----- ------- ------ ---- ------ ------- ------- --------
Balance at December 31,
1999..................... 5,538 $12,491 15,279 $ 16 $2,496 $ 359 $ -- $ 2,871
===== ======= ====== ==== ====== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 65
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FORMATION OF COMPANY
Lexent Inc. ("Lexent"), formerly named National Network Technologies, Inc.,
was incorporated in Delaware in January 1998. Its wholly owned subsidiary, Hugh
O'Kane Electric Co. LLC ("HOK LLC") was formed in June 1998. On July 16, 1998,
Hugh O'Kane Electric Co., Inc. ("HOK Inc.") issued dividends aggregating $4.9
million in the form of promissory notes to its two principal common
stockholders. On July 22, 1998, HOK Inc. was merged with and into Lexent, and
Lexent issued 15,144,400 shares of common stock to the stockholders of the
former HOK Inc. In addition on such date, substantially all of the assets of
Lexent were contributed to HOK LLC, and HOK LLC assumed all of the obligations
of the former HOK Inc. The merger was accounted for in a manner similar to a
pooling of interests since all entities were under common control. Accordingly,
HOK LLC recorded the assets and liabilities of HOK Inc. at their historical book
values, and HOK LLC's results of operations have been presented as if the merger
had occurred at the beginning of the earliest period presented.
On July 23, 1998, Lexent sold 5,538,458 shares of preferred stock for cash
proceeds of $11.5 million, and used 4.9 million of such proceeds to pay
dividends to common stockholders and $2.6 million to pay portions of promissory
notes to stockholders, with the balance of $4.0 million retained for general
corporate purposes.
Lexent's wholly owned subsidiary, National Network Technologies LLC ("NNT
LLC") was formed in August 1998. Lexent, HOK LLC and NNT LLC are together
referred to herein as "the Company".
DESCRIPTION OF BUSINESS
The Company provides outsourced local telecommunications network services
to telecommunications companies by supplying expertise and resources to enable
its customers to build and connect their networks to other telecommunications
companies and individual end users. Certain projects whose duration is expected
to exceed 90 days may be structured with milestone events that dictate the
timing of payments, and customers for these projects may withhold 10% from each
billing until after the project has been completed and satisfactorily accepted.
The Company operates in cities in the Northeast and MidAtlantic regions,
including Baltimore, Boston, Newark, New York, Philadelphia, Stamford and
Washington, D.C. For the year 1999, a majority of revenues was earned from
services provided in the New York metropolitan region, including New York City,
New Jersey, Long Island and Westchester County.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lexent and
its wholly-owned subsidiaries, HOK LLC and NNT LLC. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE AND COST RECOGNITION
The Company's services are performed under unit price, fixed price,
cost-plus-fee, or time and materials agreements. For projects whose duration is
expected to be 90 days or less, revenues and related costs are recognized using
the completed contract method. Under this method, revenues and costs are
recognized when the project has been completed.
For projects whose duration is expected to exceed 90 days, revenues are
recognized using the percentage-of-completion method. Under the
percentage-of-completion method, in each period revenues are recognized based on
a comparison of the costs incurred for each project to the currently estimated
F-7
<PAGE> 66
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
total costs to be incurred for the project. Accordingly, the revenue recognized
in a given period depends on the costs incurred for individual projects through
that period and currently estimated total remaining costs to complete the
individual projects. If in any period the estimates of the total remaining costs
to complete a project are significantly increased, very little or no additional
revenue may be recognized with respect to that project. Project costs include
all direct material, equipment, and labor costs and allocated indirect costs
related to project performance, such as fringe benefits, payroll taxes,
depreciation, maintenance, supplies, and small tools.
Revenues from cost-plus-fee projects are recognized on the basis of costs
incurred during the period plus the fee earned.
General, administrative and marketing costs are charged to expense as
incurred. Provisions for estimated losses on projects are made in the period in
which such losses are determined.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation of property and equipment is calculated on the
straight-line basis and accelerated methods over the estimated useful lives of
the assets. Useful lives of property and equipment are as follows: motor
vehicles - 5 years, tools and equipment - 7 years, furniture, office and
computer equipment - 5 years, leasehold improvements - lesser of 3 years or
duration of lease. Expenditures for repairs and maintenance are expensed as
incurred; expenditures for major renewals and betterments are capitalized. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss on disposition
is reflected in current operations. Property and equipment is reviewed for
impairment whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. The Company capitalizes the costs of
purchased software and amortizes such costs over its estimated useful life of
three years. Management does not believe that there are any material impairments
at December 31, 1999.
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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Significant estimates relate to realizability of accounts
receivable including unbilled receivables and costs of uncompleted projects,
percentages of completion of projects in progress, contracts, property and
equipment and accrued expenses. Actual results could differ from those
estimates.
INCOME TAXES
The Company recognizes deferred income taxes for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense consists of the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
F-8
<PAGE> 67
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 permits entities
to recognize the fair value of all stock-based awards on the date of grant as
expense over the vesting period or allows entities to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB No. 25 compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds the
exercise price, with pro forma net income disclosures as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value due to the short-term nature of these
instruments. The carrying amounts reported for the equipment obligations
approximate fair value because the underlying instruments earn interest at rates
comparable to current terms offered to the Company for instruments of similar
risk. The carrying amounts reported for the notes payable to banks approximate
fair value because the interest rate on such notes fluctuates with the prime
rate. The fair values of subordinated notes payable to stockholders are not
estimable due to their related party nature.
SEGMENT REPORTING
All of the Company's business activities are aggregated into one reportable
segment given the similarities of economic characteristics between the
activities and the common nature of the Company's services and customers.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, which requires entities to capitalize certain cost related to internal-use
software once certain criteria have been met. In April 1998, the same committee
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities. These standards are effective for the first quarter of the year
1999. The adoption of these standards did not have a material effect on our
consolidated financial statements.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income (after
deducting dividends accrued on preferred stock) by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of other securities by assuming the redeemable
convertible preferred stock had been converted into common stock as of the later
of the date of issuance of the preferred stock or the beginning of the fiscal
period presented at the conversion rates that would have been in effect at such
dates (and without deducting from net income dividends accrued on preferred
stock), and by including the dilutive effect of outstanding stock options in the
weighted average number of common
F-9
<PAGE> 68
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares outstanding for each period. Options granted in 1998 were anti-dilutive
and are therefore excluded from the calculation below. Details of the
calculation are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET INCOME PER SHARE -- BASIC:
Net Income............................................... $2,189 $3,828 $9,256
Less: preferred dividends................................ -- (301) (690)
------ ------ ------
Net income available to common shareholders.............. $2,189 $3,527 $8,566
====== ====== ======
Weighted average shares -- basic......................... 15,144 15,144 15,147
====== ====== ======
Net Income per share -- basic............................ $ 0.14 $ 0.23 $ 0.57
====== ====== ======
NET INCOME PER SHARE -- DILUTED:
Net Income............................................... $2,189 $3,828 $9,256
====== ====== ======
Weighted average shares outstanding...................... 15,144 15,144 15,147
Assumed conversion of preferred stock as of the later of
the date of issuance of the preferred stock or the
beginning of the fiscal period presented at the
conversion rates that would have been in effect at such
dates.................................................. -- 2,448 5,827
Dilutive effect of stock options......................... -- -- 888
------ ------ ------
Weighted average shares -- diluted....................... 15,144 17,593 21,862
====== ====== ======
Net income per share -- diluted.......................... $ 0.14 $ 0.22 $ 0.42
====== ====== ======
</TABLE>
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current year presentation.
PRO FORMA INFORMATION -- (UNAUDITED)
Pro forma information included in the consolidated statements of income for
the years 1997 and 1998 reflects the pro forma effect of providing income taxes
on previously untaxed subchapter "S" income before taxes. This pro forma effect
is calculated assuming a 45% effective tax rate.
Pro forma information for the years 1998 and 1999 reflects the pro forma
effect of the conversion of redeemable convertible preferred stock into common
stock upon the consummation of the Company's initial public offering at the
conversion rate of 1.1814 shares of common stock for each share of redeemable
convertible preferred stock. The pro forma basic and diluted weighted average
share
F-10
<PAGE> 69
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
calculations reflect the conversion of redeemable convertible preferred stock at
the later of the beginning of the period presented or the date of issuance of
the redeemable convertible preferred stock, at such conversion rate. The
calculation of pro forma basic and diluted income per share after giving effect
to the foregoing assumptions is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
PRO FORMA NET INCOME PER SHARE -- BASIC:
Pro forma net income..................................... $1,287 $2,864 $ --
------ ------ ------
Actual net income........................................ $ -- $ -- $9,256
====== ====== ======
Weighted average shares - actual......................... 15,144 15,144 15,147
Assumed conversion of preferred stock at 1.1814 common
shares for each share of redeemable convertible
preferred stock........................................ -- 2,872 6,543
------ ------ ------
Pro forma weighted average shares -- basic............... 15,144 18,016 21,690
====== ====== ======
Pro forma net income per share -- basic.................. $ 0.08 $ 0.16 $ 0.43
====== ====== ======
PRO FORMA NET INCOME PER SHARE -- DILUTED:
Adjustments to basic weighted average shares for
outstanding options.................................... -- -- 888
------ ------ ------
Pro forma weighted average shares -- diluted............. 15,144 18,016 22,578
====== ====== ======
Pro forma net income per share -- diluted................ $ 0.08 $ 0.16 $ 0.41
====== ====== ======
</TABLE>
2. RECEIVABLES, NET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable -- billed to customers................. $18,567 $30,226
Unbilled receivables on completed projects accounted for
under the completed contract method...................... 3,883 4,908
Costs and estimated earnings in excess of billings on
projects accounted for under the percentage-of-completion
method................................................... 1,832 3,858
Unbilled receivables on cost-plus contracts................ -- 6,066
Costs of uncompleted projects accounted for under the
completed contract method................................ 3,116 6,138
Retainage.................................................. 734 1,154
------- -------
28,132 52,350
Less: allowance for uncollectible amounts.................. (1,790) (3,602)
------- -------
$26,342 $48,748
======= =======
</TABLE>
For the years ended December 31, 1997, 1998 and 1999 the Company's
provision for uncollectible amounts were $0.5 million, $1.6 million and $2.4
million, respectively. The amounts written off against the provision for those
years were $0.6 million, $0.5 million and $0.6 million, respectively.
Amounts retained by customers related to projects which are progress-billed
may be outstanding for periods that exceed one year.
F-11
<PAGE> 70
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Motor vehicles............................................. $ 2,672 $ 5,069
Tools and equipment........................................ 846 2,171
Office equipment and furniture............................. 205 640
Computer equipment......................................... 336 1,059
Leasehold improvements..................................... 179 363
Purchased software......................................... 167 383
------- -------
Property, plant and equipment............................ 4,405 9,659
Less: accumulated depreciation and amortization............ (2,318) (3,479)
------- -------
Property, plant and equipment, net....................... $ 2,087 $ 6,180
======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997, 1998 and 1999 was $0.5 million, $0.8 million, and $1.5 million,
respectively. Accumulated amortization at December 31, 1999 included $0.1
million related to capitalized leases -- see Note 9 of Notes to Consolidated
Financial Statements for further information.
4. NOTES PAYABLE AND OTHER FINANCING ARRANGEMENTS
At December 31, 1999, the Company had notes payable to banks aggregating
$8.8 million under a $12.5 million collateralized revolving credit facility,
with substantially all assets of the Company pledged as collateral. The credit
facility expires in June 2002. Borrowings bear interest at the banks' prime rate
plus 0.25% (8.75% at December 31, 1999). The Company must meet certain covenants
related to earnings and interest coverage. In addition, the credit agreement
prohibits the Company from declaring or paying dividends, incurring additional
indebtedness other than for equipment obtained in the ordinary course of
business, and making acquisitions of other businesses in excess of $250,000 in
any calendar year. The bank loans are partially guaranteed by the Company's two
principal common stockholders up to a maximum of $1.5 million each. As of
December 31, 1999, the Company was in compliance with all covenants under the
credit agreement.
At December 31, 1998 the Company had two unsecured notes payable to a bank
aggregating $4.5 million. The notes were guaranteed by the Company's common
stockholders and bore interest at the bank's prime rate (7.75% at December 31,
1998). The notes were repaid in June 1998 from proceeds of the collateralized
revolving credit facility mentioned above.
At December 31, 1998 and 1999, the Company had $0.8 million and $2.2
million, respectively, of installment loans payable, primarily related to its
fleet of vehicles. Of those amounts, $0.4 million and $0.7 million,
respectively, were classified as current, with the balance classified as
noncurrent. The loans bear interest at rates ranging between 1.9% and 9.5%, have
terms averaging three years, and are collateralized by the vehicles.
At December 31, 1999 the Company had $0.7 million of capital lease
obligations. See Note 9 of Notes to Consolidated Financial Statements for
further information.
F-12
<PAGE> 71
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are the maturities of long-term debt (excluding capitalized
lease obligations) for each of the next five years:
<TABLE>
<CAPTION>
MATURITY AMOUNT
-------- --------------
(IN THOUSANDS)
<S> <C>
2000................................................... $ 714
2001................................................... 620
2002................................................... 9,372
2003................................................... 287
2004................................................... 43
-------
$11,036
=======
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS
On January 1, 1997, the Company repurchased common shares owned by a
stockholder and issued a subordinated promissory note in the amount of $10.2
million. The note bears interest at the rate of 6%. The first payment on the
note was made on July 23, 1998, at which time $1.5 million plus accrued interest
was paid. The remaining balance is payable in twenty-two quarterly installments
of $0.4 million plus accrued interest starting October 1, 1998, with the final
payment due on January 1, 2004. As of December 31, 1998 and 1999, the
outstanding principal balance of the note was $8.3 million and $6.7 million,
respectively, of which $1.6 million is classified as current at both dates, and
the balance is classified as non-current. The note is subordinated to all senior
debt.
As of December 31, 1999, the Company also had outstanding subordinated
promissory notes payable to its two principal common stockholders in the
aggregate amount of $0.4 million, which are classified as non-current. The notes
bear interest at 6% and are subordinated to all senior debt. Payment of
principal and interest on these notes is not permitted under the Company's bank
credit agreement.
RELATED PARTY TRANSACTIONS
The Company leases several premises from entities which are owned by its
principal common stockholders. Prior to 1998, the Company paid rent based on an
informal arrangement with the stockholders. Such rent was insignificant for
calendar year 1997. During 1998, the Company entered into a formal lease
agreement for these premises. Annual rentals for office and warehouse premises
at 88-90 White Street, New York, NY are $0.3 million for calendar years 1998
through 2001, and $0.4 million for calendar year 2002. Annual rentals for office
and warehouse premises in South Plainfield, NJ are $0.1 million for the
twelve-month periods April through March, commencing April 1998 through March
2008. At December 31, 1998 amounts payable by the Company to the foregoing
related entities aggregated $0.1 million. Such amounts were paid during 1999.
Periodically the Company's principal common stockholders advance money to
the Company for its operating needs, and periodically the Company makes
repayments of such advances. At December 31, 1998 a common stockholder owed the
Company $0.1 million. At December 31, 1999, the amounts owed by the Company to
its two principal common stockholders aggregated $0.2 million. At December 31,
1998, such amounts were insignificant. Such amounts bear interest at the rate of
6%, are not subordinated, and are classified as current because there are no
formal repayment terms.
During 1998 and 1999, the Company purchased services for total costs of
$0.5 million and $1.4 million, respectively, from Metro Design Systems, Inc.
("MDS"), an entity which was owned by the
F-13
<PAGE> 72
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's principal common stockholders and a director of the Company. During
1997 such purchased services were insignificant. In September 1999, the Company
acquired the plant and equipment, trade name, and goodwill of MDS for a purchase
price of $0.2 million which was paid in cash. As of December 31, 1999 amounts
payable by the Company to MDS amounted to $0.2 million.
On July 20, 1998 the Company agreed to provide a former officer, who is
currently a common stockholder, with a new automobile every three years and
lifetime medical, dental and life insurance benefits consistent with his
then-existing coverage, while he remains a stockholder of the Company. Costs
incurred for such benefits are charged to expense as incurred, and were
insignificant for the years 1998 and 1998. The Company has also agreed to pay
its founder a pension of $0.1 million per year for life.
Interest expense incurred by the Company from related parties during the
years 1997, 1998 and 1999 amounted to $0.8 million, $0.6 million and $0.5
million, respectively. Accrued interest payable to related parties as of
December 31, 1998 and 1999 was $0.1 million.
6. RETIREMENT PLANS AND 401K SAVINGS PLAN
Until December 31, 1998, the Company had two noncontributory, defined
contribution pension plans and a defined benefit pension plan covering all
employees who are not subject to collective bargaining agreements. Contributions
from the Company were accrued and funded annually. Those plans were terminated
as of December 31, 1998, and the assets were distributed to the participants in
January 1999. No pension expense was recorded for the year ended December 31,
1998, because the plans were fully funded at termination.
Effective January 1, 1999, the Company adopted The Vanguard Group Prototype
401(k) Savings Plan, covering all employees who are not subject to collective
bargaining agreements. Each covered employee is eligible to become a
participant, and may contribute up to 15% of salary on a tax-deferred basis. The
Company contributes 3% of each covered employee's salary up to the maximum
annual amount permitted by IRS regulations. The Company's contributions vest
ratably over the employees' first five years of service. For the year ended
December 31, 1999, $0.2 million was charged to expense for the 401(k) plan.
7. INCOME TAXES
The Company files a consolidated federal income tax return with its
subsidiaries. The provision for income taxes consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998 1999
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal....................................... $ -- $ 2,099 $7,950
State and local............................... 151 977 2,360
Deferred........................................ -- (1,696) (2,338)
------ ------- ------
Provision for income taxes...................... $ 151 $ 1,380 $7,975
====== ======= ======
</TABLE>
In July 1998, the Company's tax status was changed from an S corporation to
a C corporation in connection with the transactions described in Note 1 of Notes
to Consolidated Financial Statements. The difference between the expected
federal income tax provision calculated using statutory rates and the actual
provision recorded for the year ended December 31, 1998 is due principally to
the effect of the
F-14
<PAGE> 73
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's change in tax status, the allowance for uncollectible amounts,
depreciation and amortization, deferred costs on uncompleted projects and
certain accrued liabilities.
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible amounts...................... $ 498 $1,669
Deferred costs on uncompleted projects................... 643 858
Accrued liabilities...................................... 558 340
------ ------
Total deferred tax assets............................. 1,699 2,867
------ ------
Deferred tax liability:
Depreciation and amortization............................ 3 119
------ ------
Net deferred tax asset..................................... $1,696 $2,748
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon the level of historical taxable income
and projections for future taxable income, management believes it is more likely
than not that the Company will realize the deferred tax assets. As such, no
valuation allowance was established during the years 1998 or 1999.
A reconciliation of statutory federal income tax expense on the earnings
from continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -----
<S> <C> <C> <C>
Federal statutory rate applied to pre-tax
income.......................................... 34.00% 34.00% 35.00%
State taxes, net of federal benefit............... 11.39 11.46 10.40
Tax effect of non-deductible items................ 3.39 2.39 0.88
Effect on income from S corporation years......... (39.41) (22.65) --
------ ------ -----
Total tax provision............................... 9.37% 25.20% 46.28%
====== ====== =====
</TABLE>
8. CONTINGENCIES
From time to time, the Company is involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. In addition, in
August 1999, a former employee filed a charge of employment discrimination
against the Company with the New York State Division of Human Rights and the
Equal Employment Opportunity Commission and has been granted a right to sue in
federal court. If suit is brought, Company's management is prepared to defend
this claim vigorously. The Company believes that the resolution of these matters
will not have a material impact on the Company's financial position, results of
operations or liquidity.
9. LEASE COMMITMENTS
The Company leases equipment, motor vehicles and real estate (other than
real estate leased from related parties referred to in Note 5 of the Notes to
Consolidated Financial Statements) under leases accounted for as operating
leases for lease terms ranging from one to nine years. Total rent expense
amounted to $0.4 million, $0.8 million and $1.8 million for the years ended
December 31, 1997, 1998 and
F-15
<PAGE> 74
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999, respectively. Future minimum lease payments under operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
2000................................................... $1,625
2001................................................... 1,427
2002................................................... 1,230
2003................................................... 670
2004................................................... 495
After 2004............................................. 354
------
$5,801
======
</TABLE>
During 1999, the Company leased computer equipment under capital leases. As
of December 31, 1999, the asset balance of such capital leases was $0.8 million,
and accumulated amortization was $0.1 million. The weighted average interest
rate for capitalized leases is 6.5%. The following is a schedule by years of
future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of December 31, 1999:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
2000................................................... $300
2001................................................... 291
2002................................................... 167
----
Total minimum lease payments........................... 758
Less: amount representing interest..................... 97
----
Present value of net minimum lease payments............ $661
====
</TABLE>
10. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On July 23, 1998, Lexent sold 5,538,458 shares of redeemable convertible
preferred stock for proceeds of $11.5 million. Costs of $0.3 million incurred in
connection with issuing such preferred stock were charged to stockholders'
equity. The preferred stock is entitled to cumulative dividends at the rate of
6% per annum. At the option of the holders, dividends may be paid in the form of
additional value of preferred stock or in cash. Dividends are payable in cash in
the event of liquidation or redemption. The preferred stock is convertible into
common stock at a conversion rate which increases to give effect to cumulative
accrued dividends. For the years ended December 31, 1998 and 1999, dividends
have been accrued as additional value of preferred stock in the amounts of $0.3
million and $0.7 million, respectively, offset by a charge to retained earnings
(accumulated deficit).
Conversion is automatic upon the closing of a public offering of common
stock. If not otherwise converted into common stock, the preferred stock is
redeemable over a three-year period at the option of the holders beginning July
23, 2003, or under certain circumstances, beginning July 23, 2001.
The holders of the preferred stock have agreed that in the event a public
offering of common stock is consummated, preferred dividends accrued through
December 31, 1998 will be paid in the form of additional value of preferred
stock, and preferred dividends accrued from January 1, 1999 through date of
conversion will be paid in cash. Accordingly, assuming a public offering of
common stock is consummated, the conversion rate will be 1.1814 shares common
share for each share of preferred stock.
F-16
<PAGE> 75
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTIONS AND AWARDS
The Company has adopted a Stock Option and Restricted Stock Purchase Plan,
pursuant to which up to 5,800,000 common shares are available for option grants.
Stock options granted under the plan may be incentive stock options or
nonqualified stock options and are exercisable for up to ten years following the
date of grant. Vesting provisions are determined by the Board of Directors on a
case by case basis. Options granted become exercisable over periods ranging from
immediately to up to four years after the date of grant.
In July 1998, the Company issued 110,000 nonqualified options to an outside
director as a finder's fee in connection with the Company's sale of preferred
stock in July 1998. The fair value of the options at the date of grant was $0.2
million. The options vested immediately. Accordingly, the Company recorded a
charge to retained earnings of $0.2 million in 1998 as a cost of issuing the
preferred stock.
In September 1998, the Company issued 50,000 options to an outside
director. The vesting period of such options was 50% after the first year, with
the balance vesting over the next three years. For options issued to outside
directors, the Company's policy is to charge compensation expense over the
vesting period in an amount equal to the fair value of the options at grant date
as determined by the Board of Directors. For the years ended December 31, 1998
and 1999, such charge to compensation expense was immaterial.
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE FAIR
VALUE OF
WEIGHTED COMMON
NUMBER OF AVERAGE STOCK AT DATE
SHARES EXERCISE PRICE OF GRANT
--------- -------------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1997.............. -- --
Granted..................................... 380,000 $0.50 $0.50
Exercised or canceled....................... -- --
Outstanding at December 31, 1998.............. 380,000 $0.50
Granted..................................... 2,116,500 $3.90 $3.90
Exercised................................... (135,000) $0.50
Canceled.................................... -- --
---------
Outstanding at December 31, 1999.............. 2,361,500 $3.54
=========
</TABLE>
The following table summarizes options outstanding and exercisable at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.50 - $1.52 1,661,500 9.1 $ 0.83 377,083 $ 0.74
$10.00 700,000 10.0 $10.00 200,000 $10.00
--------- -------
2,361,500 $ 3.54 577,083 $ 3.95
========= =======
</TABLE>
For option grants to employees, the Company's policy is to grant options
with an exercise price equal to the fair value per share of the underlying
common stock at grant date, as determined by the Board of Directors.
Accordingly, the Company is not required to record compensation expense in
connection with grants of stock options to employees. If compensation expense
had been determined based on the fair value of the options at grant date,
consistent with the Black-Scholes option pricing methodology, the
F-17
<PAGE> 76
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's net income for the year ended December 31, 1999 would have decreased
by approximately $0.2 million. In making that calculation, the following
assumptions were used:
<TABLE>
<S> <C>
Expected volatility factor.......................... 74.13%
Risk-free interest rate............................. 6.04%
Expected life:...................................... 4 years
Expected dividend rate.............................. 0%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of options
at grant date is amortized to pro forma expense over the options' vesting
period. Pro forma information for the year ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C>
Net income:
As reported................................ $9,256
Pro forma.................................. $9,063
Basic and diluted net income per share as
reported:
Basic...................................... $ 0.57
Diluted.................................... $ 0.42
Basic and diluted pro forma net income per
share:
Basic...................................... $ 0.55
Diluted.................................... $ 0.41
</TABLE>
12. ACCRUED LIABILITIES
Accrued liabilities are comprised of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued payroll and related items........................... $2,704 $5,265
Accrued project costs....................................... 439 1,844
Other....................................................... 1,006 2,591
------ ------
Total.................................................. $4,149 $9,700
====== ======
</TABLE>
13. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash and trade receivables.
Cash balances may, at times, exceed amounts covered by FDIC insurance. The
Company believes that it mitigates its risk by depositing cash balances with
high quality financial institutions that it believes are financially sound.
Recoverability is dependent upon the performance of the institution.
Trade receivables are primarily short-term receivables from competitive
local exchange carriers and generally well known contracting companies. To
reduce credit risk, the Company performs credit evaluations of its customers but
does not generally require collateral and, therefore, the majority of its trade
receivables are unsecured. Credit risk is affected by conditions within the
economy. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends,
and other information.
F-18
<PAGE> 77
LEXENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes concentration of credit risk with respect to accounts
receivable is limited due to the large number of customers comprising the
Company's customer base and their dispersion across geographic areas. For the
year 1997, the Company had revenues from two separate customers, which comprised
21.2% and 10.3% of the Company's total revenues. At December 31, 1997, accounts
receivable from these customers totaled $3.2 million and $0.9 million,
respectively. For the year 1998, the Company had revenues from two separate
customers, which comprised 16.4% and 12.7% of the Company's total revenues. At
December 31, 1998, accounts receivable from these customers totaled $3.9 million
and $2.6 million, respectively. For the year 1999, the Company had revenues from
two separate customers, which comprised 25.7% and 13.2% of the Company's total
revenues. At December 31, 1999, accounts receivable from these customers totaled
$6.8 million and $3.6 million, respectively.
F-19
<PAGE> 78
[LEXENT LOGO]
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for the
SEC Registration Fee and the National Association of Securities Dealers, Inc.
("NASD") Filing Fee, the amounts listed below are estimates:
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
-------
<S> <C>
SEC Registration Fee........................................ $22,770
NASD Filing Fee............................................. 9,125
Nasdaq Listing Fees......................................... *
Legal Fees and Expenses..................................... *
Blue Sky Fees and Expenses.................................. 10,500
Accounting Fees and Expenses................................ *
Printing and Engraving...................................... *
Transfer Agent and Register Fees and Expenses............... *
Miscellaneous............................................... *
-------
$
=======
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Second Amended and Restated Certificate of Incorporation (the
"Restated Certificate") provides that the Company shall indemnify to the fullest
extent authorized by the Delaware General Corporation Law ("DGCL"), each person
who is involved in any litigation or other proceeding because such person is or
was a director or officer of the Company or is or was serving as an officer or
director of another entity at the request of the Company, against all expense,
loss or liability reasonably incurred or suffered in connection therewith. The
Restated Certificate provides that the right to indemnification includes the
right to be paid expenses incurred in defending any proceeding in advance of its
final disposition; provided, however, that such advance payment will only be
made upon delivery to the Company of an undertaking, by or on behalf of the
director or officer, to repay all amounts so advanced if it is ultimately
determined that such director is not entitled to indemnification. If the Company
does not pay a proper claim for indemnification in full within 60 days after a
written claim for such indemnification is received by the Company, the Restated
Certificate and the Company's Bylaws authorize the claimant to bring an action
against the Company and prescribe what constitutes a defense to such action.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation if they
acted in good faith and reasonably believed they were acting in the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if he or she had no reason to believe his or her conduct was
unlawful. In a derivative action, (i.e., one brought by or on behalf of the
corporation), indemnification may be made only for expenses, actually and
reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit, if such person acted in good faith and in
a manner that he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged to be liable to the corporation, unless and
only to
II-1
<PAGE> 80
the extent that the court in which the action or suit was brought shall
determine that the defendant is fairly and reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, the Restated Certificate
eliminates the liability of a director to the corporation or its stockholders
for monetary damages for such breach of fiduciary duty as a director, except for
liabilities arising (i) from any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) from acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) from any transaction from which the
director derived an improper personal benefit.
The Company has obtained primary and excess insurance policies insuring the
directors and officers of the Company against certain liabilities that they may
incur in their capacity as directors and officers. Under such policies, the
insurers, on behalf of the Company, may also pay amounts for which the Company
has granted indemnification to the directors or officers. In addition, we have
entered into indemnification agreements with each of our directors and executive
officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, the Company has sold and issued the following securities
that were not registered under the Securities Act:
1. On July 23, 1998, pursuant to the terms of the merger in which Hugh
O'Kane Electric Co. Inc. merged with and into the Company, the Company
issued 15,144,400 shares of common stock to three former shareholders of
Hugh O'Kane Electric Co., Inc.
2. On July 23, 1998, pursuant to the terms of an equity financing of
the Company, the Company issued 5,538,458 shares of Series A Convertible
Preferred Stock to two investors for $11.5 million.
3. During the period from July 23, 1998 through February 17, 2000, the
Company granted either incentive stock options or non-qualified stock
options to employees, officers, directors and other individuals eligible to
participate in the Lexent Inc. and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan covering an aggregate of 3,691,500 shares of
the Company's common stock. Pursuant to these grants, the Company has
issued 465,625 shares of common stock upon the exercise thereof.
4. On February 17, 2000, pursuant to a common stock purchase agreement
dated January 21, 2000, the Company issued 20,000 shares of common stock to
a director of the Company for $200,000.
The sale and issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction 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 and appropriate legends
were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of
Registrant as amended.
3.2* -- Form of Registrant's Second Amended and Restated Certificate
of Incorporation to be effective upon the consummation of
this offering.
3.3 -- By Laws of Registrant.
3.4* -- Form of Registrant's Amended and Restated By-Laws to be
effective upon the consummation of this offering.
4.1* -- Specimen certificate for shares of Common Stock.
4.2 -- Registration Rights Agreement, dated as of July 23, 1998,
among Registrant and the investors named therein.
4.3 -- Stockholders Agreement, dated as of July 23, 1998, as
amended January 13, 2000, among Registrant and the
stockholders identified on Annex I thereto.
4.4 -- Agreement, dated July 20, 1998, by and among Registrant,
Hugh O'Kane Electric Co., Inc. and Denis J. O'Kane.
4.5 -- Voting Agreement, dated February 11, 2000, by and among
Registrant, Hugh J. O'Kane, Jr. and Kevin M. O'Kane.
5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol,
with respect to the legality of securities being registered.
10.1* -- Lexent Inc. and Its Subsidiaries Amended and Restated Stock
Option and Restricted Stock Purchase Plan.
10.2 -- Form of Stock Option Agreement pursuant to the Stock Option
and Restricted Stock Purchase Plan.
10.3 -- Credit Agreement, dated as of June 29, 1999, as amended
November , 1999, by and among Registrant and European
American Bank, as Administrative Agent, and the lenders
party thereto.
10.4 -- Amended and Restated Promissory Note, dated July 23, 1998,
between Registrant and Denis J. O'Kane.
10.5* -- Form of Indemnification Agreement between Lexent Inc. and
Directors thereof.
10.6 -- Employment Agreement, dated July 23, 1998, as amended
February 14, 2000, between Hugh O'Kane Jr. and Registrant.
10.7 -- Employment Agreement, dated July 23, 1998, as amended
February 14, 2000, between Kevin O'Kane and Registrant.
10.8 -- Employment Agreement, dated August 20, 1998, as amended
February 14, 2000, between Jonathan H. Stern and Registrant.
10.9 -- Employment Agreement, dated December 13, 1999, between
Joseph Haines and Registrant.
10.10 -- Employment Agreement, dated December 20, 1999, between Rif
K. Haffar and Registrant.
10.11 -- Employment Agreement, dated December 23, 1999, between
Victor P. DeJoy, Sr. and Registrant.
10.12 -- Employment Agreement, dated January 9, 2000, between Alf T.
Hansen and Registrant.
10.14* -- Engineer, Procure and Construct Contract, dated December 28,
1998, between Level 3 Communications, LLC and Registrant.
11.1 -- Statement Regarding Computation of Per Share Earnings.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of PriceWaterhouseCoopers LLP, independent
accountants.
</TABLE>
II-3
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
23.2* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1 -- Power of Attorney (see Signature Page).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules are omitted because they are not required, are not applicable
or the information is included in our financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) 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 under "Item
14 -- Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, on February 17, 2000.
LEXENT INC.
By: /s/ HUGH J. O'KANE, JR.
------------------------------------
Hugh J. O'Kane, Jr.
Chairman of the Board of Directors
POWER OF ATTORNEY AND SIGNATURES
We the undersigned officers and directors of Lexent Inc., hereby severally
constitute and appoint Hugh J. O'Kane, Jr. and Kevin M. O'Kane, and each of them
singly (with full power to each of them to act alone), our true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them for him and in his name, place and stead, and in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any other Registration Statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ALF T. HANSEN President and Chief Executive February 17, 2000
- --------------------------------------------------- Officer (Principal
Alf T. Hansen executive officer);
Director
/s/ JONATHAN H. STERN Executive Vice President and February 17, 2000
- --------------------------------------------------- Chief Financial Officer
Jonathan H. Stern (Principal financial and
accounting officer)
/s/ HUGH J. O'KANE, JR. Chairman of the Board of February 17, 2000
- --------------------------------------------------- Directors
Hugh J. O'Kane, Jr.
/s/ KEVIN M. O'KANE Vice Chairman and Chief February 17, 2000
- --------------------------------------------------- Operating Officer
Kevin M. O'Kane
/s/ WALTER C. TEAGLE III Executive Vice President and February 17, 2000
- --------------------------------------------------- Director
Walter C. Teagle III
</TABLE>
II-5
<PAGE> 84
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ PETER O. CRISP Director February 17, 2000
- ---------------------------------------------------
Peter O. Crisp
/s/ THOMAS W. HALLAGAN Director February 17, 2000
- ---------------------------------------------------
Thomas W. Hallagan
/s/ L. WHITE MATTHEWS Director February 17, 2000
- ---------------------------------------------------
L. White Matthews
/s/ RICHARD W. SMITH Director February 17, 2000
- ---------------------------------------------------
Richard W. Smith
</TABLE>
II-6
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of
Registrant as amended.
3.2* -- Form of Registrant's Second Amended and Restated Certificate
of Incorporation to be effective upon the consummation of
this offering.
3.3 -- By Laws of Registrant.
3.4* -- Form of Registrant's Amended and Restated By-Laws to be
effective upon the consummation of this offering.
4.1* -- Specimen certificate for shares of Common Stock.
4.2 -- Registration Rights Agreement, dated as of July 23, 1998,
among Registrant and the investors named therein.
4.3 -- Stockholders Agreement, dated as of July 23, 1998, as
amended January 13, 2000, among Registrant and the
stockholders identified on Annex I thereto.
4.4 -- Agreement, dated July 20, 1998, by and among Registrant,
Hugh O'Kane Electric Co., Inc. and Denis J. O'Kane.
4.5 -- Voting Agreement, dated February 11, 2000, by and among
Registrant, Hugh J. O'Kane, Jr. and Kevin M. O'Kane.
5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol,
with respect to the legality of securities being registered.
10.1* -- Lexent Inc. and Its Subsidiaries Amended and Restated Stock
Option and Restricted Stock Purchase Plan.
10.2 -- Form of Stock Option Agreement pursuant to the Stock Option
and Restricted Stock Purchase Plan.
10.3 -- Credit Agreement, dated as of June 29, 1999, as amended
November , 1999, by and among Registrant and European
American Bank, as Administrative Agent, and the lenders
party thereto.
10.4 -- Amended and Restated Promissory Note, dated July 23, 1998,
between Registrant and Denis J. O'Kane.
10.5* -- Form of Indemnification Agreement between Lexent Inc. and
Directors thereof.
10.6 -- Employment Agreement, dated July 23, 1998, as amended
February 14, 2000, between Hugh O'Kane Jr. and Registrant.
10.7 -- Employment Agreement, dated July 23, 1998, as amended
February 14, 2000, between Kevin O'Kane and Registrant.
10.8 -- Employment Agreement, dated August 20, 1998, as amended
February 14, 2000, between Jonathan H. Stern and Registrant.
10.9 -- Employment Agreement, dated December 13, 1999, between
Joseph Haines and Registrant.
10.10 -- Employment Agreement, dated December 20, 1999, between Rif
K. Haffar and Registrant.
10.11 -- Employment Agreement, dated December 23, 1999, between
Victor P. DeJoy, Sr. and Registrant.
10.12 -- Employment Agreement, dated January 9, 2000, between Alf T.
Hansen and Registrant.
10.14* -- Engineer, Procure and Construct Contract, dated December 28,
1998, between Level 3 Communications, LLC and Registrant.
11.1 -- Statement Regarding Computation of Per Share Earnings.
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of PriceWaterhouseCoopers LLP, independent
accountants.
23.2* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1 -- Power of Attorney (see Signature Page).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LEXENT INC.
---------------------------------
Under Sections 228 and 242 of the
General Corporation Law of
the State of Delaware
---------------------------------
It is HEREBY CERTIFIED that:
1. The name of the corporation (hereinafter called the "Corporation") is
Lexent Inc.
2. The amended and restated certificate of incorporation of the Corporation
is hereby amended by striking out the number "4,800,000" appearing in the first
clause of Section 6(c) of Article III thereof and by substituting in lieu of
said number the number "5,800,000."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
Signed on February 17, 2000
/s/ Kevin M. O'Kane
---------------------
Kevin M. O'Kane
Chief Operating Officer
<PAGE> 2
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "LEXENT INC.", FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF JANUARY,
A.D. 2000, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS.
[STATE OF DELAWARE
SECRETARY OF STATE SEAL] /s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State
2850935 8100 AUTHENTICATION: 0222806
001042197 DATE: 01-28-00
<PAGE> 3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/27/2000
001042197 - 2850935
CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LEXENT INC.
---------------------------------
Under Sections 228 and 242 of the
General Corporation Law of
the State of Delaware
---------------------------------
It is HEREBY CERTIFIED that:
1. The name of the corporation (hereinafter called the "Corporation") is
Lexent Inc.
2. The amended and restated certificate of incorporation of the
Corporation is hereby amended by (1) striking out Section 5(f) of Article III
thereof and by substituting in lieu of said Section the following new Section:
"(f) Notwithstanding anything contained herein to the contrary, in
determining the Liquidation Amount for the purposes of this Section 5 only,
in the event any Common Stock or any option or other security exercisable
or convertible into, or exchangeable for, Common Stock, or any right to
acquire any such options or other securities (each such share of Common
Stock, option, security or right, an "Incentive Security") is issued,
granted or awarded pursuant to any Corporation incentive compensation plan,
the Liquidation Amount shall be increased (or decreased in accordance with
clause (i) or (ii) hereof, as the case may be) by MULTIPLYING the
Liquidation Amount immediately prior to such issuance, grant or award by
the sum of one plus the quotient of the number of shares of Common Stock
awarded or for which such Incentive Security is (directly or indirectly)
exercisable, convertible or exchangeable, divided by the total amount of
Common Stock on a fully diluted basis (excluding any Common Stock issued
or issuable upon conversion of Series A Preferred Stock) outstanding
immediately prior to such issuance, grant or award; provided that:
<PAGE> 4
(i) on any change in the number of shares of Common Stock
deliverable upon the exercise, conversion or exchange of any such
Incentive Security (other than a change resulting from the
antidilution provisions thereof), the Liquidation Amount shall
forthwith be readjusted to such Liquidation Amount as would have
been obtained had the adjustment made upon the issuance of such
Incentive Securities (or such portion thereof as may then be
outstanding) been made upon the basis of such change; and
(ii) on the expiration, forefeiture or termination of any
such Incentive Securities, the Liquidation Amount shall forthwith
be readjusted to such Liquidation Amount as would have been
obtained had the adjustment made upon the issuance of such
Incentive Securities been made upon the basis of the issuance of
only that portion of such Incentive Securities as were actually
exercised or converted into, or exchanged for, shares of Common
Stock prior to such expiration, forfeiture or termination; and
provided further that the provisions of this Section 5(f) are intended
to permit increases to the Liquidation Amount only in respect of
Incentive Securities representing a maximum 2,288,000 shares (as
adjusted equitably for stock dividends, stock splits, combinations,
etc.) of Common Stock and, accordingly, nothing contained herein shall
permit any further increase to the Liquidation Amount."; and
(2) striking out the number "2,288,000" appearing in the first clause of
Section 6(c) of Article III thereof and by substituting in lieu of said
number the number "4,800,000."
4. The amendment of the certificate of incorporation herein certified
has been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
Signed on January 20, 2000
/s/ Kevin M. O'Kane
----------------------------------------
Kevin M. O'Kane
Chief Operating Officer
<PAGE> 5
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "NATIONAL NETWORK TECHNOLOGIES INC.", CHANGING ITS NAME FROM "NATIONAL
NETWORK TECHNOLOGIES INC." TO "LEXENT INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIRST DAY OF OCTOBER, A.D. 1999, AT 9 O'CLOCK A.M.
[STATE OF DELAWARE SECRETARY OF STATE SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2850935 8100 AUTHENTICATION: 0114894
99151494 DATE: 12-02-99
<PAGE> 6
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/21/1999
991447119 - 2850935
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
NATIONAL NETWORK TECHNOLOGIES INC.
---------------------------------
Under Sections 228 and 242 of the
General Corporation Law of
the State of Delaware
---------------------------------
It is HEREBY CERTIFIED that:
1. The name of the corporation (hereinafter called the "Corporation") is
National Network Technologies Inc.
2. The amended and restated certificate of incorporation of the
Corporation is hereby amended by striking out Article I thereof and by
substituting in lieu of said Article the following new Article:
"ARTICLE I
The name of the corporation is Lexent Inc. (the "Corporation")."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
Signed on October 21, 1999
/s/ Kevin O'Kane
----------------------------------------
Kevin O'Kane, Secretary
<PAGE> 7
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "NATIONAL NETWORK TECHNOLOGIES INC.", FILED IN THIS OFFICE ON THE
SEVENTEENTH DAY OF AUGUST, A.D. 1998, AT 11 O'CLOCK A.M.
/s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
[STATE OF DELAWARE SECRETARY OF STATE SEAL]
2850935 8100 AUTHENTICATION: 0114893
991514964 DATE: 12-02-99
<PAGE> 8
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:00 AM 08/17/1998
981321269 - 2850935
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONAL NETWORK TECHNOLOGIES INC.
The undersigned, Hugh J. O'Kane, Jr. and Kevin M. O'Kane, being the
President and Secretary, respectively, of NATIONAL NETWORK TECHNOLOGIES INC.
(the "Corporation"), a corporation organized and existing under the laws of the
State of Delaware, on behalf of the Corporation, hereby certify as follows:
FIRST
The Corporation was organized under the name "National Network Services,
Corp." on January 26, 1998. The Corporation thereafter changed its name to
National Network Technologies Inc. The Corporation filed an Amended and
Restated Certificate of Incorporation on July 20, 1998 (the "Amended and
Restated Certificate of Incorporation").
SECOND
Section 5(f) of Article III of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
(a) Notwithstanding anything contained herein to the contrary, in
determining the Liquidation Amount for the purposes of this Section 5 only, in
the event any option, convertible or exchangeable security or contract right
(each, an "Incentive Option") is issued, granted or awarded pursuant to any
Corporation incentive compensation plan, the Liquidation Amount shall be
increased (but in no event decreased) by MULTIPLYING the Liquidation Amount
immediately prior to such issuance by the sum of one plus the quotient of the
number of capital securities for which such Incentive Option is convertible or
exercisable divided by the total amount of Common stock on a fully diluted
basis (excluding any Common Stock issued or issuable upon conversion of Series
A Preferred Stock) outstanding immediately prior to such issuance, grant or
award; provided that:
(i) on any change in the number of shares or exercise price of Common
Stock deliverable upon exercise of any such Incentive Options, other than a
change resulting from the antidilution provisions thereof, the Liquidation
Amount shall forthwith be readjusted to such Liquidation Amount as would have
obtained had the adjustment made upon the issuance of such options, rights or
securities not converted prior to such change or options or rights related to
such securities not converted prior to such change been made upon the basis of
such change; and
(ii) on the expiration or forfeiture of any such Incentive Options, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such Incentive Options, the Liquidation Amount
shall forthwith be readjusted to such Liquidation Amount as would have been
obtained had the adjustment made upon the issuance of such Incentive Options or
rights related to such securities been made upon the basis of the issuance of
only the number of shares of Common Stock.
<PAGE> 9
actually issued upon the exercise of such Incentive Options, upon the
conversion or exchange of such securities, or upon the exercise of the
Incentive Options related to such Incentive Options and subsequent
conversion or exchange thereof.
THIRD
This Amendment to the Amended and Restated Certificate of Incorporation
was duly adopted in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Certificate of Amendment has been signed by the
duly authorized officers of this Corporation this 17th day of August, 1998.
NATIONAL NETWORK TECHNOLOGIES INC.
By: /s/ Hugh O'Kane
------------------------------
Hugh O'Kane
President
Attest:
/s/ Kevin O'Kane
- ----------------------
Kevin O'Kane
Vice President and Secretary
<PAGE> 10
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF MERGER,
WHICH MERGES:
"HUGH O'KANE ELECTRIC CO. INC.", A NEW YORK CORPORATION WITH AND INTO
"NATIONAL NETWORK TECHNOLOGIES INC." UNDER THE NAME OF "NATIONAL NETWORK
TECHNOLOGIES INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE
STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-SECOND DAY OF
JULY, A.D. 1998, AT 1 O'CLOCK P.M.
[STATE OF DELAWARE SECRETARY OF STATE SEAL]
/s/ Edward J. Freel
___________________________________
Edward J. Freel, Secretary of State
2850935 8100M AUTHENTICATION: 0114892
991514964 DATE: 12-02-99
<PAGE> 11
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:00 PM 07/22/1998
981284387 - 2850935
CERTIFICATE OF MERGER
of
HUGH O'KANE ELECTRIC CO. INC.
(A NEW YORK CORPORATION)
into
NATIONAL NETWORK TECHNOLOGIES INC.
(A DELAWARE CORPORATION)
____________________________
Under Section 252 of the General Corporation Law
of the State of Delaware
_____________________________
Pursuant to the provisions of Section 252 of the General Corporation Law
of the State of Delaware (the "DGCL"), National Network Technologies Inc., a
Delaware corporation ("NNTI"), into which Hugh O'Kane Electric Co. Inc., a New
York Corporation ("O'Kane"), will merge with NNTI surviving, hereby certifies
as follows:
FIRST: The names of the constituent corporation are Hugh O'Kane Electric
Co. Inc., a New York corporation, and National Network Technologies Inc., a
Delaware corporation.
SECOND: An Agreement and Plan of Merger dated as of June 23, 1998,
between O'Kane and NNTI (referred to herein together as the "Corporations") has
been approved, adopted, certified, executed and acknowledged by each of the
Corporations in accordance with Section 252(c) of the DGCL.
THIRD: The name of the surviving corporation is National Network
Technologies Inc.
FOURTH: The Certificate of Incorporation of NNTI was filed with the
Department of State of the State of Delaware on January 26, 1998 under the name
"National Network Services, Corp." A Certificate of Amendment to the
Certificate of Incorporation of NNTI was filed on January 30, 1998, pursuant to
which NNTI's name was changed to "National Network Technologies Inc." The
Certificate of Incorporation of NNTI was further amended and restated and an
Amended and Restated Certificate of Incorporation was filed on July 20, 1998,
and this shall remain the Certificate of Incorporation for the surviving
corporation.
1
<PAGE> 12
FIFTH: The executed Agreement and Plan of Merger is on file at the office
of NNTI located at 88 White Street, New York, New York 10013.
SIXTH: A copy of the Agreement and Plan of Merger will be furnished by
NNTI, on request and without cost, to any stockholder of either of the
Corporations.
SEVENTH: The authorized capital stock of O'Kane on the date hereof
(immediately prior to the merger effected hereby) consists of 200 shares of
Common Stock, no par value.
IN WITNESS WHEREOF, NNTI has caused this Certificate of Merger to be
executed on its behalf by its officer thereunto duly authorized, and the
undersigned affirms its contents as true under penalty of perjury on July 20,
1998.
NATIONAL NETWORK TECHNOLOGIES INC.
(a Delaware corporation)
By /s/ Kevin O'Kane
______________________________
Kevin O'Kane
Vice President
2
<PAGE> 13
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"NATIONAL NETWORK TECHNOLOGIES INC.", FILED IN THIS OFFICE ON THE TWENTIETH DAY
OF JULY, A.D. 1998, AT 1 O'CLOCK P.M.
[STATE OF DELAWARE
SECRETARY OF STATE SEAL] /s/ Edward J. Freel, Secretary of State
---------------------------------------
Edward J. Freel, Secretary of State
2850935 8100 AUTHENTICATION: 0114891
991514964 DATE: 12-02-99
<PAGE> 14
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:00 PM 01/20/1998
981280293 - 2850935
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
NATIONAL NETWORK TECHNOLOGIES INC.
The undersigned, Hugh J. O'Kane, Jr. and Kevin M. O'Kane, being the
President and Secretary, respectively, of National Networks Technologies Inc., a
corporation organized and existing under the laws of the State of Delaware, on
behalf of said corporation, hereby certify as follows:
FIRST: The corporation (hereinafter, the "Corporation") was organized under
the name "National Network Services, Corp." on January 26, 1998. The Corporation
thereafter changed its name to National Network Technologies Inc.
SECOND: The Certificate of Incorporation of the Corporation as in effect on
the date hereof is hereby amended to read in its entirety as set forth on
Exhibit A hereto.
THIRD: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, we have executed this Certificate this 23rd day of
June, 1998.
/s/ Hugh J. O'Kane, Jr.
-----------------------
President
Attest: /s/ Kevin M. O'Kane
-------------------
Secretary
<PAGE> 15
EXHIBIT A
ARTICLE I
The name of the corporation is National Network Technologies Inc. (the
"Corporation").
ARTICLE II
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
ARTICLE III
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 50,000,000, consisting of (a) 44,461,542
shares of Common Stock, par value $.001 per share (the "Common Stock"), and (b)
5,538,458 shares of Preferred Stock, par value $.001 per share (the ("Preferred
Stock"), consisting of 5,538,458 shares of Series A Convertible Preferred
Stock, par value $.001 per share (the "Series A Preferred Stock").
The designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof in respect of the Series A Preferred Stock and the Common
Stock are as follows:
SERIES A PREFERRED STOCK
1. Dividends.
(a) The holders of Series A Preferred Stock shall be entitled to receive,
out of funds legally available for that purpose, dividends at the rate of 6% of
the Base Amount for each 12-month period (or portion thereof) ending December
31, calculated on the basis of a year of 360 days comprised of twelve 30-day
months. The "Base Amount" shall be $2.07639 per share of Series A Preferred
Stock in respect of which the dividend is being calculated. Dividends on a share
of Series A Preferred Stock shall be cumulative from the Original Issuance Date
of such share, and shall be payable (i) when and if declared, (ii) upon the
conversion of such share into Common Stock, (iii) upon a Liquidation or (iv)
upon the redemption of such share, whichever shall be the first to occur.
Dividends on the Series A Preferred Stock shall be payable in cash, if payable
at a time specified in clause (i), (iii) or (iv), or in shares of Common Stock
(pursuant to the terms of Section 5) if payable at the time specified in clause
(ii) unless the holders of 75% of the Series A Preferred Stock then outstanding
shall then agree with the Corporation in writing that such dividends shall be
paid in each at such time. If the assets of the Corporation shall be
<PAGE> 16
insufficient to pay the holders of Series A Preferred Stock in cash the full
accrued and unpaid dividends to which they shall be entitled, at a time when
such dividends are required to be paid in cash, the holders of Series A
Preferred Stock shall share in any such payment of dividends on a pro rata
basis in accordance with the total dividends that each such holder would have
received had there been such sufficient assets. After payment of all dividends
owing to holders of Series A Preferred Stock, such holders shall share ratably
(on an as-converted basis) in any dividends thereafter paid on the Common Stock.
(b) In the event the Corporation shall fail to pay in full all accrued
dividends when due on all shares of Series A Preferred Stock, then the
Corporation shall not thereafter declare or pay or set apart for payment any
dividend or other distribution upon shares of Common Stock, or any other stock
ranking on a parity with or junior to the Series A Preferred Stock as to
dividends, until and unless such accrued but unpaid dividends have been paid in
full.
2. Liquidation.
Upon a Liquidation, after payment or provision for payment of the debts
and other liabilities of the Corporation and all amounts which the holders of
any class of capital stock ranking senior to the Series A Preferred Stock shall
be entitled to receive upon such Liquidation, the proceeds the stockholders
shall be entitled to receive, out of the remaining assets of the Corporation
will be allocated as follows:
(a) if such proceeds exceed $43 million:
(i) first, to the holders of Series A Preferred Stock an amount per
share equal to the Liquidation Amount;
(ii) second, to the holders of Common Stock, $43 million minus the
aggregate Liquidation Amount;
(iii) third, to the holders of Series A Preferred Stock the greater of
(x) an amount sufficient to assure a 20% IRR on the Original Issuance Price of
each share of Series A Preferred Stock held by such holders and (y) such
holders' pro rata portion of the remaining proceeds, which pro rata portion
shall be determined based on the number of shares of Common Stock into which
such holder's shares of Series A Preferred Stock are then convertible pursuant
to Section 5; and
(iv) if the proceeds are divided as set forth in Section
Z(a)(iii)(x), then fourth, to the holders of Common Stock the remaining
proceeds; or
(b) if such proceeds are $43 million or less:
(i) first, to the holders of Series A Preferred Stock, the aggregate
Liquidation Amount; and
(ii) second, to the holders of Common Stock, the remaining proceeds.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
Series A Preferred Stock the full
-2-
<PAGE> 17
Liquidation Amount to which they shall be entitled, the holders of Series A
Preferred Stock shall share in any distribution of assets in accordance with
such full Liquidation Amount (pro rata in accordance with the total Liquidation
Amount that each such holder would have received had there been such sufficient
assets.)
3. Redemption
(a) Subject to Section 3(d) below, each holder of Series A Preferred Stock
shall have the right to require the Corporation to redeem shares of Series A
Preferred Stock held by such holder pursuant to the terms hereof.
(i) Each holder of Series A Preferred Stock may elect to have its
shares of Series A Preferred Stock redeemed under this Section
3(a) in the following amounts: (x) on or after the fifth
anniversary of the Original Issuance Date, the first 1/3 of the
then outstanding Series A Preferred Stock then held by such
holder, (y) on or after the sixth anniversary of the Original
Issuance Date, the next 1/3 of such Series A Preferred Stock
(calculated on the basis of the number of shares of Series A
Preferred Stock held by such holder on the fifth anniversary of
the Original Issuance Date) and (z) on or after the seventh
anniversary of the Original Issuance Date, the remaining Series A
Preferred Stock. In the event any holder of Series A Preferred
Stock elects to have all or part of its shares of Series A
Preferred Stock redeemed (such amount, a "Redeemable Amount")
pursuant to this Section 3(a)(i) and gives notice as required
below, such holder shall be required to sell to the Corporation
and the Corporation shall be obligated to redeem such Redeemable
Amount in accordance with the terms of this Section 3(a)(i).
(ii) Notwithstanding anything to the contrary contained in clause(i),
if the Board does not actively support a Qualified Public
Offering within 180 days after a request therefor by the holders
of at least 75% of the then outstanding Series A Preferred Stock,
which request is made at a time both (A) after the third
anniversary of the Original Issuance Date and (B) when the market
value of the Corporation, as determined by an independent
appraiser reasonably acceptable to at least 85% of the members of
the Board, exceeds $125 million, each holder of Series A
Preferred Stock shall have the right to require the Corporation
to redeem immediately all shares of its Series A Preferred Stock.
If requested by the holders of at least 75% of the then
outstanding Series A Preferred Stock, the Board shall select a
reputable independent appraiser reasonably acceptable to at least
85% of the members of the Board. If such Board members are not
able to agree upon such appraiser, which shall be an investment
banking firm of national reputation not then engaged by the
Corporation, within ten (10) business days after such request by
the holders of at least 75% of the then outstanding Series A
Preferred Stock, then the appraiser will be selected by an
arbitrator located in the City of New York, New York selected by
the American Arbitration Association (or if such organization
ceases to exist, an arbitrator chosen by a court of competent
jurisdiction.) The arbitrator shall select the investment banking
firm (within ten (10) days after his appointment) from a list,
jointly prepared by the Corporation and the requesting holders,
of not more than six investment banking firms of national
standing in the United States, of which no more than three may be
named by the Corporation and no more than three may be named by
the requesting holders. The arbitrator may consider, within the
ten-day period allotted, arguments from the parties regarding
which investment banking firm to choose, but the selection by the
-3-
<PAGE> 18
arbitrator shall be made in its sole discretion from the list of six. The
Board and the requesting holders shall submit to the investment banking
firm their respective determinations of the market value of the
Corporation, and any supporting arguments and other data as they may
desire, within ten (10) days of the appointment of the investment banking
firm, and the investment banking firm, shall as soon as practicable
thereafter, make its own determination of such market value based on the
public sale of the Corporation's securities without regard to any
discounting, including, without limitation, any discount for the fact that
the securities being valued may be held by a minority stockholder of the
Corporation. The determination by such investment banking firm shall be
final and binding upon the parties. The Corporation shall pay the fees and
expenses of the investment banking firm and arbitrators (if any) used to
determine the valuation amount. If required by any such investment banking
firm or arbitrator, the Corporation shall execute a retainer and engagement
letter containing reasonable terms and conditions, including, without
limitation, customary provisions concerning the rights of indemnification
and contribution by the Corporation in favor of such investment banking
firm or arbitrator and its officers, directors, partners, employees, agents
and affiliates.
Each holder electing redemption of its Series A Preferred Stock pursuant to
Section 3(a)(i) or (ii) will provide the Company written notice of such election
at least 30 days prior to the fifth anniversary of the Original Issuance Date or
the forty-third month after the Original Issuance Date, as the case may be, and
the Corporation shall redeem such shares of Series A Preferred Stock at the
offices of the Corporation within 90 days. If the assets of the Corporation
available for redemption of Series A Preferred Stock shall be insufficient to
permit the payment of the full price required to be paid under this Section 3,
then the holders of Series A Preferred Stock shall (in addition to their rights
under Section 3(d) below) share ratably in any such redemption based on the
respective number of shares that such holders own.
(b) The price (the "Redemption Price") at which each share of Series A
Preferred Stock is to be redeemed by the Corporation pursuant to this Section 3
shall be equal to the greater of (i) the Liquidation Amount of such share on the
date of such redemption or (ii) the Fair Market Value of such shares of Series A
Preferred Stock. On and after any date that the Corporation redeems shares of
Series A Preferred stock pursuant to this Section 3, all rights in respect of
the shares of Series A Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Corporation. The conversion
of any shares of Series A Preferred Stock into Common Stock shall have no effect
on the Redemption Price payable in connection with the redemption of the shares
of Series A Preferred Stock not so converted.
(c) The number of shares of Series A Preferred Stock deemed to be held by
the holders of the Series A Preferred Stock and to be redeemed pursuant to the
terms of this Section 3 shall be adjusted on the same basis that the number of
shares of Common Stock into which such shares of Series A Preferred Stock are
convertible pursuant to the terms of Section 5 hereof is adjusted in accordance
with the provisions of such Section 5; provided, however, that for purposes of
calculating the Liquidation Amount only in connection with determining the
Redemption Price pursuant to clause (i) of Section 3(b) above, the Base Amount
shall be adjusted, as necessary, so that the proportionate aggregate Liquidation
Amount shall be based on the number of shares of Series A Preferred Stock issued
on the Original Issuance Date subject to adjustment pursuant to
-4-
<PAGE> 19
stock splits, reverse splits or other recapitalizations of only such shares of
Series A Preferred Stock.
(d) If the Corporation fails to redeem that portion of the Series A
Preferred Stock when due in accordance with clause (x) of Section 3(a)(i), the
entire Redeemable Amount (not theretofore redeemed) shall thereafter accrue
dividends at the rate of 10% per annum. If the Corporation fails to redeem that
portion of the Series A Preferred Stock when due in accordance with clause (y)
of Section 3(a)(i), all Redeemable Series A Preferred Stock shall thereafter
accrue dividends at the rate of 15% per annum. If the Corporation fails to
redeem that portion of the Series A Preferred Stock when due in accordance with
clause (z) of Section 3(a)(i), the entire Redeemable Amount (not theretofore
redeemed) shall thereafter accrue dividends at the rate of 20% per annum.
(e) For the purposes of this Section 3, "Fair Market Value" means, as of
any date of determination, the fair value of each share of Series A Preferred
Stock, determined as provided herein, without regard to any discount, including,
without limitation, any discount for the fact (i) that such share is held by a
minority stockholder of the Corporation, (ii) that there is no market for the
Corporation's equity securities or (iii) that if there were a public market for
such equity securities, such shares would be "restricted" as defined under Rule
144 promulgated under the Securities Act of 1933. At any time that the Fair
Market Value per share of Series A Preferred Stock shall be required to be
determined hereunder, the Board shall make a good faith determination (the
"Board's Determination") of the fair value of each share of Series A Preferred
Stock and provide to the holder with respect to whose shares of Series A
Preferred Stock such determination is being made a written notice thereof, which
notice shall set forth supporting data in respect of such calculation (the
"Determination Notice"). The holder shall have 30 days following his or its
receipt of the Determination Notice within which to deliver to the Corporation a
written notice (the "Objection Notice") of his or its objection, if any, to the
Board's Determination, which Objection Notice shall set forth the holder's good
faith determination (the "Holder's Determination") of the fair market value of
each share of Series A Preferred Stock. The failure by the holder to deliver the
Objection Notice within such 30-day period shall constitute the holder's
acceptance of the Determination Notice. Upon the timely delivery of an Objection
Notice, the Corporation and the Holder shall attempt in good faith to arrive at
an agreement with respect to the Fair Market Value per share of Series A
Preferred Stock, which agreement shall be set forth in writing within 30 days
following delivery of the Objection Notice. If the Corporation and the Holder
are unable to reach an agreement within such 30-day period, the matter shall be
referred for determination to a regionally or nationally recognized investment
banking or valuation firm (the "Valuer") reasonably acceptable to the
Corporation and the holder. The Corporation and the holder will cooperate with
each other in good faith to select such Valuer. The Valuer may select the
Board's Determination or the Holder's Determination as the Fair Market Value per
share of Series A Preferred Stock or may select any other number or value. The
Valuer's selection will be (i) furnished to the Corporation and the holder in
writing and (ii) conclusive and binding upon the Corporation and the holder. The
fees and expenses of the Valuer shall be split equally by the Corporation and
the holder with respect to whose share(s) such determination relates.
(f) Any communication or notice relating to redemption given pursuant to
this Section 3 shall be sent by first-class certified mail, return receipt
requested, postage prepaid, to the holders of record of shares of Series A
Preferred Stock, at their respective addresses as the same shall
-5-
<PAGE> 20
appear on the books of the Corporation, or to the Corporation at the address of
its principal, or registered office, as the case may be. At any time on or
after the Redemption Date, the holders of record of shares of Series A Preferred
Stock being redeemed in accordance with this Section 3 shall be entitled to
receive the Redemption Price upon actual delivery to the Corporation or its
agents of the certificates representing the shares to be redeemed.
4. Voting Rights.
(a) In addition to the rights provided by law or in the Corporation's
By-laws, each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes as shall equal the number of shares of Common
Stock into which such share of Series A Preferred Stock is then convertible
pursuant to Section 5 at the record date for the determination of shareholders
entitled to vote or, if no record date is established, at the date such vote is
taken. The holders of Series A Preferred Stock shall be entitled to vote on all
matters as to which holders of Common Stock shall be entitled to vote, in the
same manner and with the same effect as such holders of Common stock, voting
together with the holders of Common Stock as one class.
(b) In addition to the other rights specified in this Section 4, until
such time as fewer than one-third of the shares of Series A Preferred Stock
issued and outstanding on the Original Issuance Date are outstanding, the
holders of seventy-five percent of the shares of Series A Preferred Stock form
time to time outstanding, voting separately as one class, shall at all times
have the special and exclusive right to elect three directors to the Board. In
any election of directors by the Series A Preferred Stock pursuant to this
Section 4(b), each holder of Series A Preferred Stock shall be entitled to one
vote for each share of Series A Preferred Stock held. The Corporation shall take
all actions necessary to effectuate the terms and provisions of this Section
4(b). The special and exclusive voting rights of the holders of Series A
Preferred Stock contained in this Section 4(b) may be exercised either at a
special meeting of the holders of Series A Preferred Stock called as provided
below, or at any annual or special meeting of the shareholders of the
Corporation, or by written consent of such holders in lieu of a meeting. The
directors to be elected pursuant to this Section 4(b) shall serve for a term
extending from the date of their election and qualification until their
respective successors have been elected and qualified. If at any time any
directorship to be filled by the holders of Series A Preferred Stock pursuant to
this Section 4(b) has been vacant for a period of 10 days, the Secretary of the
Corporation shall, upon the written request of any holder of Series A Preferred
Stock, call a special meeting of the holders of Series A Preferred Stock for the
purpose of electing a director to fill such vacancy. Such meeting shall be held
at the earliest practicable date, and at such place, as is specified in or
determined in accordance with the By-laws of the Corporation. If such meeting
shall not be called by the Secretary of the Corporation within 10 days after
personal service of such written request on him or her, then any holder of
Series A Preferred Stock may designate in writing one of their members to call
such meeting at the expense of the Corporation, and such meeting may be called
by such person so designated upon the notice required for annual meetings of
shareholders and shall be held at such place as specified in such notice. Any
holder of Series A Preferred Stock so designated shall have access to the stock
books of the Corporation relating to Series A Preferred Stock for the purpose of
calling a meeting of the stockholders pursuant to these provisions. At any
meeting held for the purpose of electing directors as provided in this Section
4(b), the presence, in person or by proxy, of the holders of record of shares
representing at least seventy-five percent of the voting power of the Series A
Preferred
-6-
<PAGE> 21
Stock then outstanding shall be required to constitute a quorum of the Series A
Preferred Stock for such election. A vacancy in the directorship to be elected
by the holders of Series A Preferred Stock pursuant to this Section 4(b) may be
filled only by vote or written consent in lieu of a meeting of the holders of
at least seventy-five percent of the voting power of the Series A Preferred
Stock.
(c) Until such time as fewer than one-third of the shares of Series A
Preferred Stock issued and outstanding on the Original Issuance Date are
outstanding, the Corporation shall not, without the affirmative consent or
approval of the holders of seventy-five percent of the shares of Series A
Preferred Stock from time to time outstanding:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock or any debt security which by
its terms is convertible into or exchangeable for any equity security or
has any other equity feature or any security that is a combination of debt
and equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without limitation,
distributions to be made upon a Liquidation, is pari passu with or is
senior to the Series A Preferred Stock or which in any manner adversely
affects the holders of the Series A Preferred Stock;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other special
rights, or the qualifications, limitations or restrictions, of the Series A
Preferred Stock;
(iii) reclassify the shares of any class or series of capital
stock into shares of any class or series of capital stock (A) ranking,
either as to payment of dividends, distributions of assets or redemptions,
including, without limitation, distributions to be made upon a Liquidation,
senior to or on a parity with the Series A Preferred Stock, or (B) which in
any manner adversely affects the rights of the holders of the Series A
Preferred Stock in their capacity as such; or
(iv) take any action to cause any amendment, alteration or repeal
of any of the provisions of (A) the Amended and Restated Certificate of
Incorporation or (B) the By-laws of the Corporation, if such amendment,
alteration or repeal would have an adverse effect on the rights of the
holders of the Series A Preferred Stock.
(v) approve or authorize any Liquidation or any recapitalization
or reorganization of the Corporation or a material subsidiary thereof;
(vi) approve or authorize the sale of all or substantially all of
the assets of the Corporation or any material subsidiary thereof;
(vii) approve or authorize any offering (public or otherwise) of
any securities by the Corporation, other than under or in connection with
Board-approved stock-based incentive or compensation plans for the benefit
of directors, officers and/or key employees of the Corporation as permitted
hereby;
(viii) approve or authorize the commencement of any substantial new
business by
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<PAGE> 22
the Corporation or any material subsidiary thereof;
(ix) approve or authorize the payment of any dividend or other
distribution upon shares of capital stock other than the Series A
Preferred Stock;
(x) approve or authorize the payment of any single capital expenditure in
excess of $500,000 during any 12-month period;
(xi) approve or authorize the incurrence of any indebtedness or the
issuance of any guarantee of any obligation of any other person or entity
(other than a subsidiary) if the aggregate amount of the principal amount
of such indebtedness and the principal amount of the indebtedness so
guaranteed shall exceed $3,000,000 (not including, in any case,
indebtedness to redeem capital stock of the Corporation or its
predecessors or otherwise repay loans made to the Corporation by
Stockholders of the Corporation, which obligations are, in each case,
outstanding as of the Original Issuance Date);
(xii) approve or authorize any change to any promissory note of the
Company, its predecessor or any subsidiary issued to any of Denis O'Kane,
Kevin O'Kane or Hugh O'Kane, Jr.; or
(xiii) approve any new stock option or stock issuance plan for the
benefit of employees or consultants of the Corporation or its
subsidiaries, provided that the Board may establish a plan or plans to
provide stock-based compensation and incentives if the aggregate number of
shares of Common Stock available for issuance in respect of awards granted
thereunder does not exceed 2,288,000 in the aggregate.
5. Conversion.
(a) Upon the terms set forth in this Section 5, each holder of each share of
Series A Preferred Stock shall have the right, at such holder's option, at any
time and from time to time, to convert such share into the number of fully paid
and nonassessable shares of Common Stock equal to the quotient obtained by
dividing (A) the Liquidation Amount (which for the purposes of this Section 5
shall be subject to adjustment pursuant to Section 5(f) below) by (B) the
Conversion Price (as defined below), as last adjusted and then in effect, by
surrender of the certificate representing such share. The conversion price per
share at which shares of Common Stock shall be issuable upon conversion of
shares of Series A Preferred Stock (the "Conversion Price") shall be the Base
Amount as adjusted pursuant to Section 5(e) below. The holder of any shares of
Series A Preferred Stock may exercise the conversion right pursuant to this
Section 5(a) by delivering to the Corporation the certificate for the shares to
be converted, duly endorsed or assigned in blank or to the Corporation (if
required by it), accompanied by written notice stating that the holder elects to
convert such shares and stating the name or names (with address) in which the
certificate or certificates for the shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected on the date when such delivery
is made or upon the consummation of a Qualified Public Offering as provided
below, if applicable (the "Conversion Date").
(b) Upon the consummation of a Qualified Public Offering and upon the terms
set forth in this Section 5, each share of Series A Preferred Stock shall
automatically be converted to that
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number of fully paid and nonassessable shares of Common Stock equal to the
quotient obtained by dividing (A) the Liquidation Amount (which for the
purposes of this Section 5 shall be subject to adjustment pursuant to Section
5(f) below) by (B) the Conversion Price, as last adjusted and then in effect.
(c) As promptly as practicable after the conversion of any shares of
Series A Preferred Stock into Common Stock under Section 5(a) or 5(b) above,
the Corporation shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or certificates
for the number of full shares of Common Stock to which such holder is entitled,
and a cash amount in respect of any fractional interest in a share of Common
Stock as provided in Section 5(d) below. The person in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed
to have become a stockholder of record on the Conversion Date unless the
transfer books of the Corporation are closed on that date, in which event such
person shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date, and the rights of the holder of
the shares of Series A Preferred Stock so converted shall cease on the
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series A Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered.
(d) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series A Preferred Stock. The number of full shares of
Common Stock issuable upon conversion of Series A Preferred Stock shall be
computed on the basis of the aggregate number of shares of such Series A
Preferred Stock to be converted. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any such shares, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the product of (i) the price of one share of Common Stock
as determined in good faith by the Board and (ii) such fractional interest. The
holders of fractional interests shall not be entitled to any rights as
stockholders of the Corporation in respect of such fractional interests.
(e) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) If the Corporation shall, at any time or from time to time
after the Original Issuance Date, issue any shares of Common Stock
(or be deemed to have issued shares of Common Stock as provided
herein), other than Excluded Stock, without consideration or for a
consideration per share less than the Conversion Price for such Series
A Preferred Stock, in effect immediately prior to the issuance of such
Common Stock, then the Conversion Price, as in effect immediately
prior to each such issuance, shall forthwith be lowered to a price
equal to the quotient obtained by dividing:
(A) an amount equal to the sum of (x) the total number of
shares of Common Stock outstanding on a fully-diluted basis
immediately prior to such issuance, multiplied by the Conversion
Price in effect immediately prior to such issuance, and (y) the
consideration received by the Corporation upon such issuance; by
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<PAGE> 24
(B) the total number of shares of Common Stock outstanding on a
fully-diluted basis immediately after the issuance of such Common
Stock.
(ii) For the purposes of any adjustment of the Conversion Price
pursuant to clause (i) above, the following provisions shall be
applicable:
(A) In the case of the issuance of Common Stock for cash in a
public offering or private placement, the consideration shall be
deemed to be the amount of cash paid therefor after deducting
therefrom any discounts, commissions or placement fees payable by the
Corporation to any broker, investment banker, underwriter or placement
agent in connection with the issuance and sale thereof.
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Corporation,
irrespective of any accounting treatment.
(C) In the case of the issuance of options to purchase or rights
to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities
except for options to acquire Excluded Stock:
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in Sections
(e)(ii)(1) and 5(e)(ii)(2) above), if any, received by the Corporation
upon the issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common Stock covered
thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities, options, or rights were
issued and for a consideration equal to the consideration received by
the Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received
by the Corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in
each case to be determined in the manner provided in Sections
5(e)(ii)(1) and 5(e)(ii)(2) above);
(3) on any change in the number of shares or exercise price of
Common Stock deliverable upon exercise of any such options or rights
or conversions of or exchanges for such securities, other than a
change resulting from the antidilution provisions thereof, the
Conversion Price shall forthwith be readjusted to the
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<PAGE> 25
Conversion Price as would have been obtained had the adjustment made upon
the issuance of such options, rights or securities not converted prior to
such change or options or rights related to such securities not converted
prior to such change been made upon the basis of such change; and
(4) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable
securities, the Conversion Price shall forthwith be readjusted to the
Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights, securities or options or rights related
to such securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities, or
upon the exercise of the options or rights related to such securities and
subsequent conversion or exchange thereof.
(D) No further adjustment of the Conversion Price adjusted upon the
issuance of any such options, rights, convertible securities or
exchangeable securities shall be made as a result of the actual issuance of
Common Stock on the exercise of any such rights or options or any
conversion or exchange of any such securities.
(iii) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of Series A
Preferred Stock shall be increased in proportion to such increase in
outstanding shares.
(iv) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(v) In the event of any capital reorganization of the Corporation, any
reclassification of the stock of the Corporation (other than a change in par
value or from par value to no par value or from no par value to par value or
as a result of a stock dividend or subdivision, split-up or combination of
shares), or any consolidation or merger of the Corporation, each share of
Series A Preferred Stock shall after such reorganization, reclassification,
consolidation, or merger be convertible into the kind and number of shares of
stock or other securities or property of the Corporation or of the corporation
resulting from such consolidation or surviving such merger to which the holder
of the number of shares of Common Stock deliverable (immediately prior to the
time of such reorganization, reclassification, consolidation or merger) upon
conversion of such share of Series A Preferred Stock would have been entitled
upon such
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<PAGE> 26
reorganization, reclassification, consolidation or merger. The provisions of
this clause shall similarly apply to successive reorganizations,
reclassifications, consolidations or mergers.
(vi) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 0.1% in such
Conversion Price; provided, that any adjustments not required to be made by
virtue of this sentence shall be carried forward and taken into account in any
subsequent adjustment. All calculations under Sections 5(c)(i) through 5(e)(v)
above shall be made to the nearest one hundredth (1/100) of a cent or the
nearest one tenth (1/10) of a share, as the case may be.
(vii) In any case in which the provisions of this Section 5(e) shall
require that an adjustment shall become effective immediately after a record
date of an event, the Corporation may defer until the occurrence of such event
(A) issuing to the holder of any share of Series A Preferred Stock converted
after such record date and before the occurrence of such event the shares of
capital stock issuable upon such conversion by reason of the adjustment
required by such event in addition to the shares of capital stock issuable upon
such conversion before giving effect to such adjustments, and (B) paying to
such holder any amount in cash in lieu of a fractional share of capital stock
pursuant to Section 5(d) above; provided, however, that the Corporation shall
deliver to such holder an appropriate instrument evidencing such holder's right
to receive such additional shares and such cash.
(viii) Whenever the Conversion Price shall be adjusted as provided in
Section 5(e)(iv), the Corporation shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Corporation, a statement, signed by its chief
executive officer, showing in detail the facts requiring such adjustment and
the Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first class
certified mail, return receipt requested and postage prepaid, to each holder of
Series A Preferred Stock affected by the adjustment at such holder's address
appearing on the Corporation's records. Where appropriate, such copy may be
given in advance and may be included as part of any notice required to be
mailed under the provisions of Section 5(e)(ix) below.
(ix) If the Corporation shall propose to take any action of the types
described in clauses (iii), (iv) or (v) of this Section 5(e), the Corporation
shall give notice to each holder of shares of Series A Preferred Stock, in the
manner set forth in Section 5(e)(vii) above, which notice shall specify the
record date, if any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series A
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 30
days prior to the taking of such proposed action. Failure to give such
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notice, or any defect therein, shall not affect the legality or validity of
any such action.
(x) The Corporation shall at all times keep reserved, free from
preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of Series A
Preferred Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series A Preferred Stock.
(xi) Without duplication of any other adjustment provided for in this
Section 5, at any time the Corporation makes or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in securities other than shares of Common Stock,
provision shall be make so that each holder of Series A Preferred Stock
shall receive upon conversion thereof, in addition to the shares of Common
Stock receivable thereupon, the number of securities of the Corporation
which it would have received had its shares of Series A Preferred Stock
been converted into shares of Common Stock on the date of such event and
had such holder thereafter, during the period from the date of such event
to and including the date of conversion, retained such securities
receivable by it pursuant to this paragraph during such period, subject to
the sum of all other adjustments called for during such period under this
Section 5 with respect to the rights of such holder of Series A Preferred
Stock.
(f) Notwithstanding anything contained herein to the contrary, in
determining the Liquidation Amount for the purposes of this Section 5 only, in
the event any option, convertible or exchangeable security or contract right
(each, an "Incentive Option") is issued, granted or awarded pursuant to any
Corporation incentive compensation plan, the Liquidation Amount shall be
increased (but in no event decreased) by dividing the Liquidation Amount
immediately prior to such issuance by the fraction equal to one minus the
quotient of the number of capital securities for which such Incentive Option is
convertible or exercisable divided by the total amount of Common Stock (on a
fully diluted basis) outstanding immediately prior to such issuance, grant or
award; provided that:
(i) on any change in the number of shares or exercise price of
Common Stock deliverable upon exercise of any such Incentive Options,
other than a change resulting from the antidilution provisions thereof,
the Liquidation Amount shall forthwith be readjusted to such Liquidation
Amount as would have obtained had the adjustment made upon the issuance of
such options, rights or securities not converted prior to such change or
options or rights related to such securities not converted prior to such
change been made upon the basis of such change; and
(ii) on the expiration or forfeiture of any such Incentive Options,
the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such Incentive Options, the
Liquidation Amount shall forthwith be readjusted to such Liquidation
Amount as would have been obtained had the adjustment made upon the
issuance of such Incentive Options or rights related to such securities
been made upon the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such Incentive Options,
upon the conversion or exchange of such securities, or upon the exercise
of the Incentive Options related to such Incentive Options and subsequent
conversion or exchange thereof.
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6. Definitions.
As used herein, the following terms shall have the following meanings:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Change of Control" shall mean any transaction or any event after the
Original Issuance Date as a result of which (i) any one or more Persons acquires
or for the first time controls or is able to vote (directly or through nominees
or beneficial ownership) after the Original Issuance Date 40% or more of any
class of stock of the Corporation outstanding at the time having power
ordinarily to vote for directors of the Corporation or (ii) the control of more
than 40% of the number of shares of Common Stock held by Persons on the Original
Issuance Date has been transferred (including transfers by and among such
Persons) since the Original Issuance Date in the aggregate. For purpose of this
paragraph (b), "Common Stock" shall include shares of Common Stock issuable upon
exercise of warrants, options and other rights to acquire Common Stock
outstanding on the Original Issuance Date, whether or not at the time exercised
or exercisable.
(c) "Excluded Stock" means (i) up to 2,288,000 shares (as adjusted
equitably for stock dividends, stock splits, combinations, etc.) of Common
Stock available for issuance in respect of awards granted to directors,
officers and employees of the Corporation or its subsidiaries under stock-based
compensation and incentive plans approved by the Board, and (ii) shares of
Common Stock issued upon conversion of shares of Series A Preferred Stock,
including in the case of both (i) and (ii), any additional shares of Common
Stock as may be issued by virtue of antidilution provisions, if any, applicable
to such options, warrants or shares, as the case may be.
(d) "IRR" means, with respect to shares of Series A Preferred Stock, the
pre-tax, compounded annual internal rate of return realized thereon (i)
assuming all such shares were purchased by one Person on the Original Issuance
Date at a price equal to the Original Issuance Price and all such shares were
held continuously by such Person from the dates of issuance through the date of
the Liquidation and (ii) including, as a return on the shares of Series A
Preferred Stock, any cash dividends, distributions or redemptions made by the
Corporation in respect of such shares during such period (other than tax
distributions).
(e) "Liquidation" means (i) any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, other than any
dissolution, liquidation or winding up in connection with any reincorporation
of the Corporation in another jurisdiction, (ii) any merger of the Corporation
with or into another corporation which such corporation survives the merger,
(iii) a Change of Control or (iv) a sale of all or substantially all of the
assets of the Corporation.
(f) "Liquidation Amount" means as to each share of Series A Preferred
Stock the Base Amount plus all accrued and unpaid dividends thereon through the
date of payment of such amount to the holder thereof.
(g) "Original Issuance Date" means the date of original issuance of the
first share of the Series A Preferred Stock.
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(h) "Original Issuance Price" means $2.07639 per share of Series A
Preferred Stock as issued on the Original Issuance Date.
(i) "Qualified Public Offering" shall mean an underwritten public offering
of shares of Common Stock registered pursuant to the Securities Act of 1933, as
amended, that is approved by the holders of Series A Preferred Stock pursuant
to Section 4(c) hereof.
COMMON STOCK
Each holder of shares of Common Stock shall be entitled to one vote for
each share of Common Stock held on all matters as to which holders of Common
Stock shall be entitled to vote. Except for and subject to those rights
expressly granted to the holders of the Series A Preferred Stock, or except as
may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders including, but
not by way of limitation, (a) the right to receive dividends, when and as
declared by the Board of Directors of the Corporation out of assets legally
available therefor, and (b) in the event of any distribution of assets upon a
Liquidation or otherwise, the right to receive ratably and equally all the
assets and funds of the Corporation remaining after the payment to the holders
of shares of the holders of the Series A Preferred Stock of the specific
amounts which they are entitled to receive, respectively, upon such Liquidation
as herein provided.
ARTICLE IV
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors, and the directors need not be elected
by ballot unless required by the by-laws of the Corporation.
ARTICLE V
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized to make, amend and repeal the By-Laws of the Corporation.
ARTICLE VI
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this provision
shall not adversely affect any right
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<PAGE> 30
or protection of a director of the Corporation existing at the time of such
repeal or modification.
ARTICLE VII
The address of the Corporation's registered office in the State of Delaware
is 15 East North St., Dover, Delaware. The Corporation's registered agent at
such address is XL Corporate Services, Inc.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the state of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such matter as the said court
directs. If a majority in number representing 3/4 in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of or creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
16
<PAGE> 1
EXHIBIT 3.3
----------------------------------
AMENDED AND RESTATED BY-LAWS
Effective as of June 23, 1998
----------------------------------
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware, and the
registered agent of the Corporation shall be XL Corporate Services, Inc., 15
East North Street, Dover, Delaware 19901, or such other agent within the State
of Delaware as the Board of Directors of the Corporation shall select.
Section 2. Other Officers. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held within six
months following the close of each fiscal year of the Corporation, or on such
other date as may be fixed from time to time by resolution of the Board of
Directors, and at such place within or without the State of Delaware as shall
be designated by the Board of Directors.
Section 2. Special Meeting. Special meetings of the stockholders may be
called by the holders of record of the Corporation's Series A Preferred Stock
for the purpose or purposes, at the time or times, and in the manner, specified
in the Certificate of Incorporation, and may be called for any purpose or
purposes by the Chairman of the Board, if any, the President of the
Corporation, a Supermajority of the Board of Directors (as defined in Section 7
of Article III) or the holders of more than fifty percent (50%) of the shares
of stock of the Corporation issued and outstanding and entitled to vote thereat.
Such meetings shall be held at such time and at such place within or without
the State of Delaware as shall be specified in the notice of the meeting,
provided that, a special meeting called for the purpose of filling a vacancy
among the directors elected by the holders of record of Series A Preferred
Stock in accordance with Section 12 of Article III shall be held at the earliest
practicable date after notice thereof is given, not less than ten nor more than
60 days after such notice.
<PAGE> 2
Section 3. Notice of Meetings. Notice of the place, date and time of the
holding of each annual and special meeting of the stockholders and the purpose
or purposes thereof shall be given personally or by mail in a postage prepaid
envelope to each stockholder entitled to vote at such meeting, not less than
ten nor more than 60 days before the date of such meeting, and, if mailed, it
shall be directed to such stockholder at his address as it appears on the
records of the Corporation, unless he shall have filed with the Secretary of
the Corporation a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address. Any
such notice for any meeting other than the annual meeting of stockholders shall
indicate that it is being issued at the direction of holders of record of
Series A Preferred Stock, the Chairman of the Board, if any, the President, the
Board of Directors or the stockholders, as applicable, which notice shall not
be required to be given to any stockholder and who shall attend such meeting in
person or by proxy and shall not, at the beginning of such meeting, object to
the transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy. Unless the Board of Directors shall
fix a new record date for an adjourned meeting, notice of such adjourned
meeting need not be given if the time and place to which the meeting shall be
adjourned are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than 30 days or, if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 4. Quorum. Except as otherwise required by law or the Certificate
of Incorporation, at all meetings of the stockholders, the presence in person
or by proxy of the holders of record of a majority of the shares of stock of
the Corporation issued and outstanding and entitled to vote shall constitute a
quorum for the transaction of any business. At any meeting held for the purpose
of electing directors representing the holders of Series A Preferred Stock, the
presence, in person or by proxy, of the holders of record of at least 80% of
the voting power of the Series A Preferred Stock then issued and outstanding
shall constitute a quorum for the transaction of such business. In the absence
of a quorum, the holders of a majority of the shares of stock present in person
or by proxy and entitled to vote or, if no stockholder entitled to vote is
present, then any officer of the Corporation, may adjourn the meeting from time
to time. At any such adjourned meeting at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 5. Organization. At each meeting of the stockholders, the Chairman
of the Board, if any, or in his absence or inability to act, the President, or
in his absence or inability to act, any person chosen by a majority of those
stockholders present or represented, shall act as chairman of the meeting. The
Secretary, or, in his absence or inability to act, an Assistant Secretary or
any other officer appointed by the chairman of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
Section 6. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 7. Voting. Except as otherwise provided by statute or the
Certificate of Incorporation, at each meeting of the stockholders, each holder
of record of shares of (a) Common Stock of the Corporation
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<PAGE> 3
shall be entitled to one vote for every share of such stock standing in his name
on the record of stockholders of the Corporation, and (b) Series A Preferred
Stock of the Corporation shall be entitled to one vote for every share of Common
Stock of the Corporation into which such shares of Series A Preferred are then
convertible pursuant to the Certificate of Incorporation, in each case (i) on
the date fixed by the Board of Directors as the record date for the
determination of the stockholders who shall be entitled to notice of and to vote
at such meeting; or (ii) if such record date shall not have been so fixed, then
at the close of business on the day next preceding the day on which notice
thereof shall be given; or (iii) if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. Except as
otherwise specified in the Certificate of Incorporation or these By-laws, the
holders of record of shares of Series A Preferred Stock or shares of Common
Stock shall vote together as one class. Each stockholder entitled to vote at any
meeting of stockholders may authorize another person or persons to act for him
by a proxy signed by such stockholder or his attorney-in-fact. Any such proxy
shall be delivered to the secretary of such meeting at or prior to the time
designated in the order of business for so delivering such proxies. No proxy
shall be valid after the expiration of three years from the date thereof, unless
the proxy provides for a longer period. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except in those cases where an
irrevocable proxy is permitted by law. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total votes
cast at a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action, or, at any meeting
held for the purpose of electing directors representing the holders of Series A
Preferred Stock, by vote of the holders of record of at least 75% of the voting
power of the Series A Preferred Stock then issued and outstanding. Unless
required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by written ballot. On a vote by
written ballot, each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and shall state the number of shares voted.
Section 8. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, or shall cause to be prepared
and made, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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Section 9. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If inspectors shall not be so appointed or if any
of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any stockholder entitled to vote thereat shall, appoint one or
more inspectors. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors shall determine the number of shares outstanding,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as inspector of an election of directors.
Inspectors need not be stockholders.
Section 10. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided by the Certificate of Incorporation or by law, any action which is
required or permitted to be taken at any meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a written
consent setting forth the action so taken is signed by the holders of record of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 11. Notice of Stockholder Business. At an annual meeting of
stockholders, only such business shall be conducted as shall properly have been
brought before the meeting. To be brought properly before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given as set forth in the Certificate of Incorporation or by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors or by the Chairman of
the Board or the President of the Corporation or (c) otherwise properly brought
before the meeting by a stockholder. For business to be brought properly before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof (as determined by the Board of Directors or otherwise pursuant to
the Certificate of Incorporation) in writing to the Secretary of the
Corporation. As used in this Section 11 of these By-Laws, the phrase "notice or
prior public disclosure of the date of the meeting" shall mean notice or prior
public disclosure of the date on which the meeting is originally scheduled to be
called to order and shall not refer to notice or prior public disclosure of any
date to which such meeting may be adjourned. A stockholder's notice to the
Secretary shall set forth, as to each matter the stockholder proposes to bring
before the annual meeting, (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's stock transfer books, of the stockholder proposing such business,
and (iii) the class and number of shares of capital stock of the Corporation
which are beneficially owned (such term being used in this Section 11 of these
By-Laws with the meaning ascribed to such term in Rule 13d-3 of the rules under
the Securities Exchange Act of 1934, as amended, as such Rule was in effect
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on July 1, 1990) by the stockholder. If the presiding officer of an annual
meeting determines and declares that business was not properly brought before
the meeting in accordance with this Section 11, any such business shall not be
transacted.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The property, business and affairs of the
Corporation shall be managed by the Board of Directors. The Board of Directors
may exercise all such authority and powers of the Corporation and do all such
lawful acts and things as are not by statute or the Certificate of
Incorporation or these By-Laws directed or required to be exercised or done by
the stockholders.
Section 2. Number, Term of Office, Qualifications and Election. The number
of directors of the Corporation shall be at least seven, and shall otherwise be
determined by the Board of Directors or the stockholders in accordance with the
Certificate of Incorporation, unless there shall be no Series A Preferred Stock
issued and outstanding, in which case the number of directors comprising the
entire Board shall be one, or such other number as shall be determined from
time to time by the Board of Directors. Until such time as specified in the
Certificate of Incorporation, the holders of record of Series A Preferred
Stock, voting as a class as specified herein and in the Certificate of
Incorporation, shall be entitled to elect that number of directors as set forth
in the Certificate of Incorporation (the "Series A Directors") and the holders
of record of shares of Common Stock, voting as a class, shall be entitled to
elect that number of directors as set forth in the Certificate of Incorporation
(the "Common Directors"). At each annual meeting of stockholders, directors
elected to succeed the directors whose terms expire at such annual meeting
shall be elected to hold office for a term expiring at the next annual meeting.
Directors need not be stockholders. Except as otherwise required by statute or
the Certificate of Incorporation or these By-Laws, directors to be elected at
each annual meeting of stockholders shall be elected by a plurality of the
votes cast at the meeting by the holders of shares present in person or
represented by proxy and entitled to vote for the election of such directors.
Section 3. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of the stockholders,
on the same day and at the same place where such annual meeting shall be held
or at such other time and place as the Board of Directors shall determine.
Notice of such meeting need not be given. Such meeting may be held at any other
time or place (within or without the State of Delaware) which shall be
specified in a notice thereof given as hereinafter provided in Section 6 of
this Article III, or in a waiver of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places within or without the State of Delaware
as the Board of Directors may from time to time by resolution determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same
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hour on the next succeeding business day. Notice of regular meetings of the
Board of Directors need not be given except as otherwise required by statute or
these By-Laws.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board, if any, the President
or any three directors of the Corporation and shall be held at such time and at
such place within or without the State of Delaware as shall be specified in the
notice of meeting or waiver thereof.
Section 6. Notice of Meetings. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, in which notice shall be stated the time and place of the meeting.
Notice of each such meeting shall be delivered to each director, either
personally or by telephone, telegraph, facsimile transmission, cable, or
wireless, at least twenty-four hours before the time at which such meeting is
to be held or shall be mailed to each director by first-class mail postage
prepaid, addressed to him at his residence, or usual place of business, at
least two days before the day on which such meeting is to be held. Notice of
any such meeting need not be given to any director who shall, either before or
after the meeting, submit a signed waiver of notice or who shall attend such
meeting without objecting, at the beginning of such meeting, to the transaction
of any business because the meeting is not lawfully called or convened. Except
as otherwise specifically required by these By-Laws, a notice or waiver of
notice of any regular or special meeting of the Board of Directors need not
state the purpose or purposes of such meeting.
Section 7. Quorum and Manner of Acting. A majority in number of each of
the Series A Directors and the Common Directors, and, so long as the Company may
be party to stockholders agreement requiring the holders of each of the Series A
Preferred Stock and the Common Stock to elect a certain number of unaffiliated,
unrelated directors (the "Independent Directors") among both the Series A
Directors and the Common Directors, a majority in number of such Independent
Directors (who shall also count for purposes of determining whether a majority
of the class of directors to which they otherwise each belong is present) shall
be present in person at any meeting of the Board of Directors in order to
constitute a quorum for the transaction of business at such meeting, and, except
as otherwise expressly required by statute, the Certificate of Incorporation or
these By-Laws, the act of a majority of the directors present at any such
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum at any meeting of the Board of Directors, a majority
of the directors present, or if no director is present, the Secretary, may
adjourn such meeting to another time and place, or such meeting, unless it be
the annual meeting of the Board of Directors, need not be held. At any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the meeting as originally called. Except as provided in
Section 12 of this Article III and Article IV of these By-Laws and as otherwise
specifically authorized by resolution of the Board of Directors, the directors
shall act only as a Board of Directors and the individual directors shall have
no power as such.
Section 8. Action Requiring Supermajority Vote. Notwithstanding anything
contained herein to the contrary, so long as the number of directors
constituting the entire Board of Directors of the Corporation shall be seven,
the following actions to be taken by the Board of Directors shall require the
affirmative vote of at least six of the seven directors or, if applicable, the
vote of all directors other than the director or directors
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who have a direct personal interest in the outcome of a matter to be voted upon
(a "Supermajority"): (a) any of the transactions or actions requiring the
approval of the holders of 75% of the shares of Series A Preferred Stock as set
forth in Section 4(c) of the Certificate of Incorporation; (b) the election or
removal without cause of any of the Chairman of the Board (if any), President,
any Vice President, Treasurer or Secretary of the Corporation; (c) the
termination of any employment agreement between an officer named in Section 8(b)
above and the Corporation, or the entry into an employment agreement between
the Corporation and such an officer; (d) the removal, without cause, of a
director of the Corporation; (e) the repeal or amendment of any of these
By-laws, or the adoption of new By-laws; (f) the creation and appointment of any
committee of the Board of Directors, and the designation of its duties, pursuant
to Article IV of these By-laws, unless the composition of such committee
reflects the same proportionate representation of Series A Directors and Common
Directors as such directors represent on the entire Board of Directors; (g) the
dissolution of any committee appointed pursuant to Article IV of these By-laws;
(h) the declaration of dividends, or the payment of dividends in cash if
otherwise payable in stock pursuant to the Certificate of Incorporation; (i) the
determination not to undertake in full then existing indemnity obligations of
the Corporation; (j) a change in the number of directors constituting the entire
Board of Directors and (k) any other action or transaction requiring such a vote
hereunder or under the Certificate of Incorporation.
Section 9. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, if any, or, in his absence or inability to act, the
President, or, in his absence or inability to act, another director chosen by a
majority of the directors present, shall act as chairman of the meeting and
preside thereat. The minutes of the meeting shall be recorded by any officer of
the Corporation present and designated by such chairman.
Section 10. Resignations. Any director of the Corporation may resign at any
time by giving written notice of his or her resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 11. Removal of Directors. Except as otherwise provided in the
Certificate of Incorporation, any director may be removed, at any time, with or
without cause, by the affirmative vote of (a) the holders of a majority of the
outstanding shares of the class of stock that was entitled to vote for the
election of such director at a meeting of such stockholders called and held for
that purpose, (b) a majority of the Board of Directors, if for cause, or (c) a
Supermajority of the Board of Directors, if without cause.
Section 12. Vacancies. Except as otherwise required by statute or by the
Certificate of Incorporation, during the intervals between annual meetings of
stockholders, any vacancies and any newly created directorships resulting from
an increase in the authorized number of directors of the Corporation and
vacancies occurring in the Board of Directors for any reason may be filled by
majority vote of the directors then remaining in office of the same class as
the class of the director to be elected, whether or not a quorum, or by a sole
remaining such director, at a meeting of the Board of Directors. Each director
chosen to fill a vacancy shall hold office for the unexpired term in respect of
which such vacancy occurred. Except as otherwise required by the Certificate of
Incorporation, each director chosen to fill a newly created directorship
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shall hold office for a term expiring at the next annual meeting. Each director
shall hold office for the specified term and until a successor shall be duly
elected and qualified, except in the event of death, resignation or removal. If
there are no directors in office, then a special meeting of stockholders for the
election of directors may be called and held in the manner provided by statute.
Section 13. Compensation. The Board of Directors or a committee of the
Board designated by it in accordance with the terms hereof shall have authority
to fix the compensation, if any, including, without limitation, fees and
reimbursement of expenses, of directors for services to the Corporation in any
capacity; provided, however, that no such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
Section 14. Action without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
Section 15. Participation in Meetings by Telephone and Other Equipment.
Members of the Board of Directors or of any committee thereof may participate in
a meeting of the Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
ARTICLE IV
Executive and Other Committees
Section 1. Executive and Other Committees. The Board of Directors may,
acting in accordance with Article III, designate an Executive Committee, to
consist of two or more directors of the Corporation, and one or more other
committees, each such other committee to consist of two or more of the directors
of the Corporation. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The Executive Committee,
while the Board of Directors is not in session, shall have and may exercise, and
any such other committee, to the extent provided in the applicable resolution of
the Board of Directors establishing such committee, shall have and may exercise,
all the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
amending the By-Laws of the Corporation or otherwise taking any of the actions
that require the vote of a Supermajority of the Board or the approval of the
stockholders or any class thereof, whether pursuant to these By-law or the
Certificate of Incorporation. Each committee shall keep written
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minutes of its proceedings and shall report such minutes to the Board of
Directors when required. All such proceedings shall be subject to revision or
alteration by the Board of Directors; provided, however, that rights of third
parties shall not be prejudiced by such revision or alteration. The Board may,
at any time, fill vacancies in, change the membership of, or dissolve any such
committee as set forth in Section 8 of Article III.
Section 2. Executive Committee General. Regular meetings of the Executive
Committee shall be held at such times and places, within or without the State of
Delaware, as a majority of such Committee may from time to time by resolution
determine. Special meetings of the Executive Committee may be called at the
request of any member thereof and may be held at such times and places, within
or without the State of Delaware, as such Committee may from time to time by
resolution determine or as shall be specified in the respective notices or
waivers of notice thereof. Notice of regular meetings of such Committee need not
be given except as otherwise required by statute of these By-Laws. Notice of
each special meeting of such Committee shall be given to each member of such
Committee in the manner provided for in Section 6 of Article III of these
By-Laws. Subject to the provisions of this Article IV, the Executive Committee,
by resolution of a majority of such Committee, shall fix its own rules of
procedure. A majority of the Executive Committee shall be present in person at
any meeting of the Executive Committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a majority of those
present at any meeting at which a quorum is present shall be the act of the
Executive Committee. The members of the Executive Committee shall act only as a
committee, and the individual members shall have no power as such.
Section 3. Other Committees: General. A majority of any committee may fix
its rules of procedure, determine its action, and fix the time and place, within
or without the State of Delaware, or its meetings, unless the Board of Directors
shall otherwise by resolution provide. Notice of such meetings shall be given to
each member of the committee in the manner provided for in Section 6 of Article
III of these By-Laws. Nothing in this Article IV shall be deemed to prevent the
Board of Directors from appointing one or more committees consisting in whole or
in part of persons who are not directors of the Corporation; provided, however,
that no such committee shall have or may exercise any authority of the Board of
Directors unless any action taken thereby is approved by a majority of the
members thereof, each member of which is a member of the Board of Directors.
ARTICLE V
Officers
Section 1. Number and Qualifications. The officers of the Corporation shall
be a President, a Treasurer and a Secretary. Any two or more offices may be held
by the same person. Such officers shall be elected from time to time by the
Board of Directors, each to hold office until the meeting of the Board following
the next annual meeting of the stockholders, or until his successor shall have
been duly elected and shall have qualified, or until his death, or until he
shall have resigned or until he shall have been removed, as hereinafter provided
in these By-Laws. The Board of Directors may from time to time elect such other
officers (including a Chairman of the Board and one or more Vice Presidents,
Assistant Treasurers and Assistant
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Secretaries) and such agents as it may deem necessary or desireable for the
business of the Corporation. The Board of Directors may from time to time
authorize any principal officer or committee to appoint, and to prescribe the
authority and duties of, any such subordinate officers or agents. Each of such
other officers and agents shall have such authority, perform such duties, and
hold office for such period, as are provided in these By-Laws or as may be
prescribed by the Board of Directors or by the principal officer or committee
appointing such officer or agent.
Section 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his or her resignation to the Board of
Directors, the Chairman of the Board, if any, the President or the Secretary.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3. Removal. Any officer or agent of the Corporation may be removed,
either with or without cause, at any time, by vote of the Board of Directors as
specified in Section 8 of Article III, or (except in the case of an officer or
agent elected or appointed by the Board) by any principal officer or committee
upon whom such power of removal may be conferred by the Board.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, disqualification, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. The Chairman of the Board. The Chairman of the Board, if
elected, shall, if present, preside at all meeting of the stockholders and the
Board of Directors and, in general, shall have such other powers and perform
such other duties as usually pertain to the office of the Chairman of the Board
or as from time to time may be assigned to him or her by the Board of Directors.
At the discretion of the Board of Directors, the Chairman of the Board, if
elected, may be the chief executive officer of the Corporation and, if so
appointed by the Board of Directors, shall have general and active supervision
and direction over the business and affairs of the Corporation and over its
officers, subject, however, to the control of the Board of Directors.
Section 6. The President. The President shall be the chief executive
officer of the Corporation and shall have general and active supervision and
direction over the business and affairs of the Corporation and over its
officers, unless the Chairman of the Board, if any, is appointed to serve as
chief executive officer, in which case the President shall be the chief
operating officer of the Corporation and shall have general and active
supervision and direction over the ordinary business operations and affairs of
the Corporation and over its officers, subject, however, to the supervision and
direction of the Chairman of the Board, if any, who is also the chief executive
officer of the Corporation, and to the control of the Board of Directors. He or
she shall, if present, in the absence or inability to act of the Chairman of the
Board, preside at meetings of the stockholders and at meeting of the Board of
Directors. In general, the President shall have such other powers and perform
such other duties as usually pertain to the office of the President and chief
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executive officer or chief operating officer, as the case may be, or as from
time to time may be assigned to him or her by the Board of Directors or the
Chairman of the Board, if any.
Section 7. Vice Presidents. Each Vice President shall have such powers and
perform such duties as usually pertain to his office or as from time to time
may be assigned to him by the Board of Directors, the Chairman of the Board, if
any, or the President. During the absence of the President or his inability to
act, the Vice President, or, if there is more than one Vice President, the Vice
President designated by the Board of Directors, shall exercise the powers and
perform the duties of the President, subject to the direction of the Board of
Directors or the Chairman of the Board, if any.
Section 8. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and have control of all books of account of
the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board of Directors, taking proper
vouchers therefor;
(f) render to the Chairman of the Board, if any, the President, the Board
of Directors or any committee thereof, whenever required, an account of the
financial condition of the Corporation and of his transactions as Treasurer; and
(g) in general, have such other powers and perform such other duties as
usually pertain to the office of Treasurer or as from time to time may be
assigned to him or her by the Board of Directors, the Chairman of the Board, if
any, or the President.
Section 9. Assistant Treasurers. At the request of the Treasurer or in the
case of his or her absence or inability to act, the Assistant Treasurer, or if
there be more than one, the Assistant Treasurer designated by the Board of
Directors or, in the absence of such designation, by the Chairman of the Board,
if any, or the President, shall perform all the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. In general, each Assistant Treasurer shall
have such other powers and perform such other duties as from time to time may
be assigned to him or her by the Board of Directors, the Chairman of the Board,
if any, the President or the Treasurer.
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Section 10. The Secretary. The Secretary shall:
(a) keep or cause to be kept, in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, of the
committees of the Board of Directors and of the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, have such other powers and perform such other duties as
usually pertain to the office of Secretary or as from time to time may be
assigned to him or her by the Board of Directors, the Chairman of the Board, if
any, or the President.
Section 11. Assistant Secretaries. At the request of the Secretary or in
case of his or her absence or inability to act, the Assistant Secretary, or if
there be more than one, the Assistant Secretary designated by the Board of
Directors or, in the absence of such designation, by the Chairman of the Board,
if any, or the President shall perform all the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary. In general, each Assistant Secretary shall have
such other powers and perform such other duties as from time to time may be
assigned to him or her by the Board of Directors, the Chairman of the Board, if
any, the President or the Secretary.
Section 12. Officers' Bonds or Other Security. If required by the Board of
Directors, any officer of the Corporation shall give a bond for the faithful
performance of his or her duties, for such term and in such amount and with
such surety or sureties as the Board may require.
Section 13. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors or a committee of the Board designated by it,
and no officer of the Corporation shall be prevented from receiving
compensation by reason of the fact that he or she is also a director of the
Corporation.
ARTICLE VI
Checks, Drafts, Bank Accounts Etc.
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Section 1. Checks, Drafts, etc. All checks, drafts, bills of exchange or
other orders for the payment of money out of the funds of the Corporation, and
all notes or other evidences of indebtedness of the Corporation shall be signed
in the name and on behalf of the Corporation by such person or persons and in
such manner as shall from time to time be authorized by the Board of Directors.
Section 2. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may from
time to time designate or as may be designated by any officer or officers of
the Corporation to whom such power of designation may from time to time be
delegated by the Board of Directors. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation.
Section 3. General and Special Bank Accounts. The Board of Directors may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositaries as the Board may
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be delegated by the
Board of Directors. The Board of Directors may make such special rules and
regulations with respect to such bank accounts, not inconsistent with provisions
of these By-Laws, as it may deem expedient.
Section 4. Proxies in Respect of Securities of Other Corporations. Unless
otherwise provided by resolution adopted by the Board of Directors, the Chairman
of the Board, if any, the President or any Vice President may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation in the
name and on behalf of the Corporation to cast the votes which the Corporation
may be entitled to cast as the holder of stock or other securities in any other
corporation any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of
such other corporation, or to consent in writing in the name of the Corporation
as such holder to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name of or on
behalf of the Corporation and under its corporate seal, or otherwise, all such
written proxies or other instruments as he may deem necessary or proper in the
premises.
ARTICLE VII
Shares and Their Transfer; Examination of Books
Section 1. Stock Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, in such form as shall be approved by
the Board of Directors, certifying the number and class of shares of stock of
the Corporation owned by him or her. The certificates representing shares of
the respective classes of stock shall be numbered in order of their issue and
shall be signed in the name of the Corporation by the Chairman of the Board, if
any, or the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary and sealed with the seal
of the Corpo-
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<PAGE> 14
ration (which seal may be a facsimile, engraved or printed). Any or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent,
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent, or registrar at the date of issue.
Section 2. Books of Account and Record of Stockholders. The books and
records of the Corporation may be kept at such places, within or without the
State of Delaware, as the Board of Directors may from time to time determine.
The stock record books and the blank stock certificate books shall be kept by
the Secretary or by any other officer or agent designated by the Board of
Directors.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof, or by his or her attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary or with a transfer agent or transfer clerk, and on surrender of the
certificate or certificates for such shares properly endorsed or accompanied by
a duly executed stock transfer power and the payment of all taxes thereon.
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for
all purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corporation may hold
any such stockholder of record liable for calls and assessments and the
Corporation shall not be bound to recognize any equitable or legal claim to or
interest in any such share or shares on the part of any other person whether or
not it shall have express or other notice thereof. Whenever any transfers of
shares shall be made for collateral security and not absolutely, and both the
transferor and transferee request the Corporation to do so, such fact shall be
stated in the entry of the transfer.
Section 4. Regulations. The Board of Directors may make such
additional rules an regulations, not inconsistent with these By-Laws or the
Certificate of Incorporation, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer agents or one or more transfer clerks and one or more
registrars and may require all certificates for shares of stock to bear the
signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of
any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board of Directors may, in its discretion, require such
owner or his or her legal representatives to give the Corporation and/or any
agent of the Corporation designated by it a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties as the Board of
Directors in its absolute discretion shall determine, to indemnify the
Corporation and/or such agent against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate, or
the issuance of a new certificate. Anything herein to the contrary
notwithstanding, the
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<PAGE> 15
Board of Directors, in its absolute discretion, may refuse to issue any such
new certificate, except pursuant to legal proceedings under the laws of the
State of Delaware.
Section 6. Stockholder's Right of Inspection. Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. In every instance where an attorney or other agent shall be the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing which authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the Corporation at its registered office in the
State of Delaware or at its principal place of business.
Section 7. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE VIII
Dividends
Subject to the provisions of applicable law or of the Certificate of
Incorporation relating thereto, if any, dividends upon the capital stock of the
Corporation may be declared by a Supermajority of the Board of Directors at any
regular or special meeting. Dividends may be paid in cash, in property or in
shares of the capital stock of the Corporation, subject to applicable law and
the Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose or purposes as the Board of Directors shall determine to be in the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
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<PAGE> 16
ARTICLE IX
INDEMNIFICATION
Section 1. Right to Indemnification. The Corporation shall, to the
fullest extent permitted by applicable law as then in effect, indemnify any
person (the "Indemnitee") who was or is involved in any manner (including,
without limitation, as a party or a witness) or was or is threatened to be made
so involved in any threatened, pending or completed investigation, claim,
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action, suit or proceeding by
or in the right of the Corporation to procure a judgment in its favor) (a
"Proceeding") by reason of the fact that he or she is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a partnership,
joint venture, trust or other enterprise (including, without limitation, service
with respect to any employee benefit plan), whether the basis of any such
Proceeding is alleged action in an official capacity as a director or officer or
in any other capacity while serving as a director or officer, against all
expenses, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) actually and reasonably incurred by him in connection with such
Proceeding. The right to indemnification conferred in this Article IX shall
include the right to receive payment in advance of any expenses incurred by the
indemnitee in connection with such Proceeding, consistent with applicable law as
then in effect. All right to indemnification conferred in this Article IX,
including such right to advance payments and the evidentiary, procedural and
other provisions of this Article IX, shall be a contract right. The Corporation
may, by action of its Board of Directors, provide indemnification for employees,
agents, attorneys and representatives of the Corporation with up to the same
scope and extent as provided for officers and directors.
Section 2. Insurance Contracts and Funding. The Corporation may purchase
and maintain insurance to protect itself and any person who is, was or may
become an officer, director, employee, agent, attorney or representative of the
Corporation or, at the request of the Corporation, an officer, director,
employee, agent, attorney or representative of another corporation or entity,
against any expense, liability or loss asserted against him or her or incurred
by him or her in connection with any Proceeding in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him or her against such expense, liability or loss under
the provisions of Article TENTH of the Certificate of Incorporation or this
Article IX or otherwise. The Corporation may enter into contracts with any
director, officer, employee, agent, attorney or representative of the
Corporation, or any person serving as such at the request of the Corporation
for another corporation or entity, in furtherance of the provisions of this
Article IX and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification of any person
entitled thereto.
Section 3. Indemnification: Not Exclusive Right. The right of
indemnification provided in this Article IX shall not be exclusive of any other
rights to which any person seeking indemnification may otherwise be entitled
under any provision of the Certificate of Incorporation or By-Laws or agreement
or otherwise. The provisions of this Article IX shall inure to the benefit of
the heirs and legal representatives of any person entitled to indemnity under
this Article IX and shall be applicable to all Proceedings, whether arising from
acts
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<PAGE> 17
or omissions occurring before or after the adoption of this Article IX. No
amendment or repeal of any provision of this Article IX shall remove, abridge or
adversely affect any right of indemnification or any other benefits of the
Indemnitee under the provisions of this Article IX with respect to any
Proceeding involving any act or omission which occurred prior to such amendment.
Section 4. Advancement of Expenses; Procedures; Presumptions and
Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation,
of the provisions of the Certificate of Incorporation or the foregoing
provisions of this Article IX, the following procedures, presumptions and
remedies shall apply with respect to advancement of expenses and the right to
Indemnification under the Certificate of Incorporation or this Article IX:
(a) Advancement of Expenses: All reasonable expenses incurred by or
on behalf of the Indemnitee in connection with any Proceeding shall be advanced
to the Indemnitee by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the indemnitee and; if required by law at the
time of such advance, shall include or be accompanied by an undertaking by or on
behalf of the Indemnitee to repay the amounts advanced if it should ultimately
be determined that the Indemnitee is not entitled to be indemnified against such
expense pursuant to this Article IX.
(b) Procedure for Determination of Entitlement to Indemnification.
(i) To obtain indemnification, an Indemnitee shall submit to the
President or Secretary of the Corporation a written request, including such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to Indemnification (the "Supporting Documentation"). The determination
of the Indemnitee's entitlement to indemnification shall be made not later than
60 days after receipt by the Corporation of the written request for
indemnification together with the Supporting Documentation. The President or
Secretary of the Corporation shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that the Indemnitee
has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification shall be
determined in one of the following ways: (A) by a majority vote of the
Disinterested Directors (as hereinafter defined) (or the Disinterested Director,
if only one); (B) by a written opinion of Independent Counsel (as hereinafter
defined) if (x) a Change of Control (as hereinafter defined) shall have occurred
and the Indemnitee so requests or (y) there is no Disinterested Director or a
majority of the Disinterested Directors (or the Disinterested Director, if only
one) so directs; (C) by the stockholders of the Corporation other than any
interested stockholder (but only if a majority of the Disinterested Directors
(or the Disinterested Director, if only one) determines that the issue of
entitlement to indemnification should be submitted to the stockholders for their
determination); or (D) as provided in Section 4(c) of this Article IX.
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<PAGE> 18
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to
Section 4(b)(ii) of this Article IX, a majority of the Disinterested
Directors (or the Disinterested Director, if only one) shall select
the Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object; provided, however, that if a
Change of Control shall have occurred, the Indemnitee shall select
such Independent Counsel, but only an Independent Counsel to which the
Board of Directors does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as
otherwise expressly provided in this Article IX, the Indemnitee shall be
presumed to be entitled to indemnification upon submission of a request for
indemnification together with the Supporting Documentation in accordance with
Section 4(b)(i) of this Article IX, and thereafter the Corporation shall have
the burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered under Section
4(b) of this Article IX to determine entitlement to indemnification shall not
have been appointed or shall not have made a determination within 60 days after
receipt by the Corporation of the request therefor together with the Supporting
Documentation, the Indemnitee shall be deemed to be entitled to
indemnification. With regard to the right to indemnification for expenses, if
and to the extent that the Indemnitee has been successful on the merits or
otherwise in any Proceeding, or if and to the extent that the Indemnitee was
not a party to the Proceeding or if a Proceeding was terminated without a
determination of liability on the part of the Indemnitee with respect to any
claim, issue or matter therein or without any payments in settlement or
compromise being made by the Indemnitee with respect to a claim, issue or
matter therein, the Indemnitee shall be deemed to be entitled to
indemnification, which entitlement shall not be diminished by any determination
which may be made pursuant to Sections (4)(b)(ii)(A), (B) or (C). In either
case, the Indemnitee shall be entitled to such indemnification, unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in making the
request for indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law, in either case as finally determined by
adjudication or, at the Indemnitee's sole option, arbitration (as provided in
Section 4(d)(i) of this Article IX). The termination of any Proceeding
described in Section 1 of this Article IX, or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, adversely affect the right
of the Indemnitee to indemnification or create any presumption with respect to
any standard of conduct or belief or any other matter which might form a basis
for a determination that the Indemnitee is not entitled to indemnification.
(d) Remedies of Indemnitee.
(i) In the event that a determination is made pursuant to
Section 4(b) of this Article IX that the Indemnitee is not entitled to
indemnification under this Article IX, (A) the Indemnitee shall be
entitled to seek an adjudication of his entitlement to such
indemnification either, at the Indemnitee's sole option, in (x) an
appropriate court of the State of Delaware or any other court of
competent jurisdiction or (y) an arbitration to be conducted by three
arbitrators (or, if the dispute involves less than $100,000, by a
single arbitrator) pursuant to the rules of the American Arbitration
Association; (B) any such judicial proceedings or arbitration shall be
de novo and the Indemnitee shall not be prejudiced by reason of such
adverse determination; and (C) in any such judicial proceeding or
arbitration the Corporation shall have the burden of proof that the
Indemnitee is not entitled to indemnification under this Article IX.
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<PAGE> 19
(ii) If a determination shall have been made or deemed to have been
made, pursuant to Section 4(b) or (c) of this Article IX, that the Indemnitee is
entitled to indemnification, the Corporation shall be obligated to pay the
amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination, unless (A) the Indemnitee
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (B) such indemnification
is prohibited by law, in either case as finally determined by adjudication or,
at the indemnitee's sole option, arbitration (as provided in Section 4(d)(i) of
this Article IX). In the event that (C) advancement of expenses is not timely
made pursuant to Section 4(a) of this Article IX or (D) payment of
indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 4(b) or (c) of this Article IX, the Indemnitee shall be
entitled to seek judicial enforcement of the Corporation's obligation to pay to
the Indemnitee such advancement of expenses or indemnification. Notwithstanding
the foregoing, the Corporation may bring an action, in an appropriate court in
the State of Delaware or any other court of competent jurisdiction, contesting
the right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in subclause (A) or (B) of this clause (ii) (a
"Disqualifying Event"), provided, however, that if the Indemnitee shall elect,
at his sole option, that such dispute shall be determined by arbitration (as
provided in Section 4(d)(i) of this Article IX), the Corporation shall proceed
by such arbitration. In any such enforcement or other proceeding or action in
which whether a Disqualifying Event has occurred is an issue, the Corporation
shall have the burden of proving the occurrence of such Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 4(d) that
the procedures and presumptions of this Article IX are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
or arbitrators that the Corporation is bound by all the provisions of this
Article IX.
(iv) In the event that the Indemnitee, pursuant to this Article IX,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Article IX, or is
otherwise involved in any adjudication or arbitration with respect to his right
to indemnification, the Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any expenses
actually and reasonably incurred by him if the Indemnitee prevails in such
judicial adjudication or arbitration. If it shall be determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such judicial adjudication or
arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Section 4:
(i) "Change in Control" means a change in control of the ultimate
corporate parent of the Corporation of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 (the "Act"), as such item was in
effect on November 1, 1992, whether or not the Corporation is then
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<PAGE> 20
subject to such reporting requirement; provided that, without limitation,
such a change in control shall be deemed to have occurred if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Act) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Corporation representing 20
percent or more of the combined voting power of the Corporation's then
outstanding securities without the prior approval of at least two-thirds of
the members of the Board of Directors in office immediately prior to such
acquisition; (B) the Corporation is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (C) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Corporation's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period)
cease for any reason to constitute at least a majority of the Board of
Directors.
(ii) "Disinterested Director" means a director of the
Corporation who is not or was not a material party to the Proceeding in
respect of which indemnification is sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a
law firm that neither presently is, nor in the past five years has been,
retained to represent: (A) the Corporation or the Indemnitee in any matter
or (B) any other party to the Proceeding giving rise to a claim for
indemnification under this Article IX. Notwithstanding the foregoing, the
term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing under the law
of the State of Delaware, would have a conflict of interest in representing
either the Corporation or the Indemnitee in an action to determine the
Indemnitee's rights under this Article IX.
Section 5. Acts of Disinterested Directors. Disinterested Directors
considering or acting on any indemnification matter under this Article IX or
otherwise may consider or take action as the Board of Directors or may consider
or take action as a committee or individually or otherwise.
Section 6. Severability. If any provision or provisions of this
Article IX shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article IX (including, without limitation, all portions of
any paragraph of this Article IX containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article IX (including,
without limitation, all portions of any paragraph of this Article IX containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
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<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
dated as of July 23, 1998
among
NATIONAL NETWORK TECHNOLOGIES INC.
and the
INVESTORS
<PAGE> 2
Table of Contents
Section 1. Definitions.................................................. 1
Section 2. Required Registration........................................ 2
Section 3. Piggyback Registration....................................... 4
Section 4. Registrations on Form S-3.................................... 5
Section 5. Holdback Agreement........................................... 5
Section 6. Preparation and Filing....................................... 6
Section 7. Expenses..................................................... 9
Section 8. Indemnification.............................................. 9
Section 9. Underwriting Agreement....................................... 12
Section 10. Information by Holder....................................... 12
Section 11. Exchange Act Compliance..................................... 12
Section 12. No Conflict of Rights....................................... 12
Section 13. Termination................................................. 12
Section 14. Successors and Assigns...................................... 13
Section 15. Assignment.................................................. 13
Section 16. Entire Agreement............................................ 13
Section 17. Notices..................................................... 13
Section 18. Modifications; Amendments; Waivers.......................... 14
Section 19. Counterparts; Facsimile Signatures.......................... 14
Section 20. Headings.................................................... 14
Section 21. Governing Law............................................... 15
<PAGE> 3
REGISTRATION RIGHTS
AGREEMENT, dated as of July, 1998,
among NATIONAL NETWORK
TECHNOLOGIES INC., a Delaware corporation
(the "Corporation"), and the INVESTORS (as
herein defined).
The Investors own shares of Preferred Stock (as hereinafter defined),
which is convertible, as and when set forth in the Corporation's Amended and
Restated Certificate of Incorporation, into Common Stock (as hereinafter
defined) of the Corporation. The Corporation and the Investors deem it to be in
their respective best interests to set forth the rights of the Investors in
connection with public offerings and sales of the Common Stock and are entering
into this Agreement as a condition to and in connection with the Securities
Purchase Agreement (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, the Corporation and the Investors hereby
agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"Charter" means the Company's Amended and Restated Certificate of
Incorporation.
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.001 par value per share, of
the Corporation.
"Exchange Act" means the Securities Exchange Act of 1934 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Investors" means the persons set forth on Schedule I and each
additional person who shall execute a counterpart signature page hereto, and
includes any successor to, or assignee or transferee of, any such person who or
which agrees in writing to be treated as an Investor hereunder and to be bound
by the terms and comply with all applicable provisions hereof.
"Other Shares" means at any time those shares of Common Stock which do
not constitute Primary Shares or Registrable Shares.
"Preferred Stock" means the Series A Convertible Preferred Stock, $.001
par value per
<PAGE> 4
share, of the Corporation.
"Primary Shares" means at any time the authorized but unissued shares
of Common Stock and shares of Common Stock held by the Corporation in its
treasury.
"Registrable Shares" means at any time, with respect to any Investor,
the shares of Common Stock held by such Investor, or into which Shares of
Preferred Stock held by such Investor are convertible, which constitute
Restricted Shares.
"Restricted Shares" means shares of Common Stock held by or issuable
upon the conversion of shares of the Preferred Stock held by, any Investor, and
any other securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock or other securities which are so exercisable or
convertible and any securities received in respect thereof, held by such
Investor. As to any particular Restricted Shares, once issued, such Restricted
Shares shall cease to be Restricted Shares when (a) they have been registered
under the Securities Act, and the registration statement in connection therewith
has been declared effective, (b) they are eligible to be sold or distributed
pursuant to Rule 144 within any consecutive three month period (including
without limitation, Rule 144(k)) without volume limitations, or (c) they shall
have ceased to be outstanding.
"Registration Date" means the date upon which the registration
statement pursuant to which the Corporation shall have initially registered
shares of Common Stock under the Securities Act for sale to the public shall
have been declared effective.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto (such as Rule 144A).
"Securities Act" means the Securities Act of 1933 or any successor
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect from time to time.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated the date hereof, among the Corporation, among others, and the Investors.
SECTION 2. REQUIRED REGISTRATION.
If at any time on or after ninety days after the Registration Date,
holders representing not less than 33-1/3% of the Restricted Shares then
outstanding shall in writing state that such holders desire to sell Registrable
Shares in the public securities markets and request the Corporation to effect
the registration under the Securities Act of Registrable Shares, the Corporation
shall promptly use its best efforts to effect tho registration under the
Securities Act of the Registrable Shares which the Corporation has been so
requested to register; provided, however, that the Corporation shall not be
obligated to effect any registration under the Securities Act except in
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accordance with the Amended and Restated Certificate of Incorporation and the
following provisions:
(a) The Corporation shall not be obligated to use its best
efforts to file and cause to become effective (i) more than two
registration statements initiated pursuant to this Section 2 on Form S-
1 promulgated under the Securities Act or any successor form thereto,
(ii) any registration statement during any period in which any other
registration statement (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto) pursuant to
which Primary Shares are to sold has been filed and not withdrawn or
has been declared effective within the prior 90 days.
(b) The Corporation may delay the filing or effectiveness of
any registration statement for a period of up to 90 days after the date
of a request for registration pursuant to this Section 2 if at the time
of such request (i) the Corporation is engaged, or has fixed plans to
engage within 90 days of the time of such request, in a firm commitment
underwritten public offering of Primary Shares in which the holders of
Registrable Shares may include Registrable Shares pursuant to Section 3
or (ii) the Corporation reasonably determines that such registration
and offering would interfere with any material transaction involving
the Corporation, as approved by the Board of Directors, provided,
however, that the Corporation may only delay the filing or
effectiveness of a registration statement pursuant to this Section 2(b)
for a total of 180 days after the date of a request for registration
pursuant to this Section 2.
(c) With respect to any registration pursuant to this Section
2, the Corporation shall give notice of such registration to the
Investors who do not request registration hereunder and to the holders
of all Other Shares that are entitled to registration rights and the
Corporation may include in such registration any Primary Shares or
Other Shares; provided, however, that if the managing underwriter
advises the Corporation that the inclusion of all Registrable Shares,
Primary Shares and/or Other Shares proposed to be included in such
registration would interfere with the successful marketing (including
pricing) of the Registrable Shares proposed to be included in such
registration, then the number of Registrable Shares, Primary Shares
and/or Other Shares proposed to be included in such registration shall
be included in the following order:
(i) First, the Registrable Shares requested to be
included in such registration (or, if necessary, such
Registrable Shares pro rata among the holders thereof based
upon the number of Registrable Shares requested to be
registered by each such holder);
(ii) second, the Primary Shares; and
(iii) third, the Other Shares which are entitled to
registration rights.
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(d) If the holders of the Registrable Shares requesting to be
included in a registration pursuant to this Section 2 so elect, the
offering of such Registrable Shares pursuant to such registration shall
be in the form of an underwritten offering. The holders of Registrable
Shares then holding 75% of the Registrable Shares requested to be
included in such registration shall select one or more nationally
recognized firms of investment bankers reasonably acceptable to the
Company to act as the lead managing underwriter or underwriters in
connection with such offering.
(e) At any time before the registration statement covering
Registrable Shares becomes effective, the holders of 75% of such shares
may request the Corporation to withdraw or not to file the registration
statement. In that event, if such request of withdrawal shall not have
been caused by, or made in response to, the material adverse effect of
an event on the business, properties, condition, financial or
otherwise, or operations of the Corporation, the holders shall have
used one of their demand registration rights under this Section 2 and
the Corporation shall no longer be obligated to register Registrable
Shares pursuant to the exercise of such one registration right pursuant
to this Section 2 unless the remaining holders shall pay to the
Corporation the expenses incurred by the Corporation through the date
of such request.
SECTION 3. PIGGYBACK REGISTRATION.
If the Corporation at any time proposes for any reason to register
Primary Shares or Other Shares under the Securities Act (other than on Form S-4
or Form S-8 promulgated under the Securities Act or any successor forms
thereto), it shall give written notice to the Investors of its intention to so
register such Primary Shares or Other Shares at least 30 days before the initial
filing of such registration statement and, upon the written request, delivered
to the Corporation within 20 days after delivery of any such notice by the
Corporation, of the Investors to include in such registration Registrable Shares
(which request shall specify the number of Registrable Shares proposed to be
included in such registration and shall state that such Investors desire to sell
such Registrable Shares in the public securities markets), the Corporation shall
use its best efforts to cause all such Registrable Shares to be included in such
registration on the same terms and conditions as the securities otherwise being
sold in such registration; Provided, however, that if the managing underwriter
advises the Corporation that the inclusion of all Registrable Shares requested
to be included in such registration would interfere with the successful
marketing (including pricing) of the Primary Shares or Other Shares proposed to
be registered by the Corporation, then the number of Primary Shares, Registrable
Shares and Other Shares proposed to be included in such registration shall be
included in the following order:
if the Corporation proposes to register Primary Shares, or Primary
Shares and Other Shares:
(a) first, the Primary Shares; and
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(b) second, the Registrable Shares requested to be included in
such registration (or, if necessary, such Registrable Shares pro rata
among the holders thereof based upon the number of Registrable Shares
requested to be registered by each such holder); and
(c) third, the Other Shares requested to be included in such
registration (or, if necessary, such Other Shares pro rata among the
holders thereof based upon the number of Other Shares requested to be
registered by each such holder).
Without in any way limiting the number of registrations in which the
Corporation shall be required to include Registrable Securities at the request
of the required number of Investors pursuant to this Section 3 and Section 4
below, the Corporation shall only be responsible for the costs and expenses
(including all expenses under Section 7 below) of up to four piggyback
registrations pursuant to this Section 3 and up to four S-3 registrations
pursuant to Section 4 below.
SECTION 4. REGISTRATIONS ON FORM S-3.
Anything contained in Section 2 to the contrary notwithstanding and
subject to the last sentence of Section 3, at such time as the Corporation shall
have qualified for the use of Form S-3 promulgated under the Securities Act or
any successor form thereto, the holders of the Registrable Shares then
outstanding shall have the right to request in writing an unlimited number of
registrations of Registrable Shares on Form S-3 or such successor form of
Registrable Shares, which request or requests shall (a) specify the number of
Registrable Shares intended to be sold or disposed of and the holders thereof,
(b) state the intended method of disposition of such Registrable Shares and (c)
relate to Registrable Shares having an aggregate offering price of at least
$250,000. A requested registration on Form S-3 or any such successor form in
compliance with this Section 4 shall not count as a registration statement
initiated pursuant to Section 2 but shall otherwise be treated as a registration
initiated pursuant to, and shall, except as otherwise expressly provided in this
Section 4, be subject to Section 2, including, without limitation, Section 2(a).
SECTION 5. HOLDBACK AGREEMENT.
If the Corporation at any time shall register shares of Common Stock
under the Securities Act (including any registration pursuant to Sections 2, 3
or 4 hereof) for sale to the public, the Investors shall not sell publicly, make
any short sale of, grant any option for the purchase of, or otherwise dispose
publicly of, any Registrable Shares (other than those shares of Common Stock
included in such registration pursuant to Sections 2, 3 or 4 hereof) without the
prior written consent of the Corporation, for a period designated by the
Corporation in writing to the Investors, which period shall begin not more than
10 days prior to the effectiveness of the registration statement pursuant to
which such public offering shall be made and shall not last more than 90 days
after the effective date of such registration statement. The Corporation shall
obtain the agreement of any person permitted to sell shares of stock in a
registration to be bound by and to
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comply with this Section 5 as if such person was an Investor hereunder.
SECTION 6. PREPARATION AND FILING.
If and whenever the Corporation is under an obligation pursuant to the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares, the Corporation shall, as expeditiously as
practicable:
(a) use its best efforts to cause a registration statement
that registers such Registrable Shares to become and remain effective
for a period of 90 days or until all of such Registrable Shares have
been disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a
prospectus relating thereto or any amendments or supplements relating
to such a registration statement or prospectus, to one legal counsel
selected by 75% of the Investors initiating such Registration, and
timely identified to the Corporation (the "Investors' Counsel"), copies
of all such documents proposed to be filed (it being understood that
such five-business-day period need not apply to successive drafts of
the same document proposed to be filed so long as such successive
drafts are supplied to the Investors' Counsel in advance of the
proposed filing by a period of time that is customary and reasonable
under the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 90 days or until all of
such Registrable Shares have been disposed of (if earlier) and to
comply with the provisions of the Securities Act with respect to the
sale or other disposition of such Registrable Shares;
(d) notify in writing the Investors' Counsel of the receipt by
the Corporation of any notification with respect to (i) any comments by
the Commission with respect to such registration statement or
prospectus or any amendment or supplement thereto or any request by the
Commission for the amending or supplementing thereof or for additional
information with respect thereto, (ii) the issuance by the Commission
of any stop order suspending the effectiveness of such registration
statement or prospectus or any amendment or supplement thereto or the
initiation or threatening of any proceeding for that purpose and (iii)
the suspension of the qualification of such Registrable Shares for sale
in any jurisdiction or the initiation or threatening of any proceeding
for such purposes;
(e) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the Investors reasonably request and do any and all
other acts and things which may be reasonably necessary or advisable
to enable the Investors to consummate the disposition in such
jurisdictions of the
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Registrable Shares owned by the Investors; provided, however, that the
Corporation will not be required to qualify generally to do business,
subject itself to general taxation or consent to general service of
process in any jurisdiction where it would not otherwise be required to
do so but for this paragraph (e) or to provide any material undertaking
or make any changes in its By-laws or the Amended and Restated
Certificate of Incorporation of the Corporation which the Board of
Directors determines to be contrary to the best interests of the
Corporation or to modify any of its contractual relationships then
existing;
(f) furnish to the Investors holding such Registrable Shares
such number of copies of a summary prospectus, if any, or other
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
Investors may reasonably request in order to facilitate the public sale
or other disposition of such Registrable Shares;
(g) without limiting subsection (e) above, and subject in each
case to the limitations contained therein, use its best efforts to
cause such Registrable Shares to be registered with or approved by such
other governmental agencies or authorities as may be necessary by
virtue of the business and operations of the Corporation to enable the
Investors holding such Registrable Shares to consummate the disposition
of such Registrable Shares;
(h) notify the Investors holding such Registrable Shares on a
timely basis at any time when a prospectus relating to such Registrable
Shares is required to be delivered under the Securities Act within the
appropriate period mentioned in subparagraph (a) of this Section 6, of
the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the
request of the Investors, prepare and furnish to such Investors a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
offerees of such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(i) subject to the execution of confidentiality agreements in
form and substance satisfactory to the Corporation, make available upon
reasonable notice and during normal business hours, for inspection by
the Investors holding such Registrable Shares, any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by the
Investors or underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents
and properties of the Corporation (collectively, the
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<PAGE> 10
"Records"), as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Corporation's
officers, directors and employees to supply all information (together
with the Records, the "Information") reasonably requested by any such
Inspector in connection with such registration statement. Any of the
Information which the Corporation determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, shall not be disclosed by the Inspectors unless (i) the
disclosure of such Information is necessary to avoid or correct a
misstatement or omission in the registration statement, provided that
such disclosure is made only after consultation with the Corporation,
(ii) the release of such Information is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction or (iii) such
Information has been made generally available to the public, other than
by any party hereto in breach of its obligations hereunder; the
Investors agree that they will, upon learning that disclosure of such
Information is sought in a court of competent jurisdiction, give notice
to the Corporation and allow the Corporation, at the Corporation's
expense, to undertake appropriate action to prevent disclosure of the
Information deemed confidential;
(j) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form
and at customary times and covering matters of the type customarily
covered by cold comfort letters under the circumstances;
(k) use its best efforts to obtain from its counsel an opinion
or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the
same entity and which may be the Corporation) for such Registrable
Shares;
(m) issue to any underwriter to which the Investors holding
such Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the
Common Stock is not listed on a national securities exchange, use its
best efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD") or such other national securities exchange
as the holders of seventy-five percent of such Registrable Shares shall
reasonably request;
(o) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, including by making
available to its securityholders earning statements that satisfy the
provisions of Section 11 (a) of the Securities Act; and
(p) subject to all the other provisions of this Agreement, use
its best efforts to take all other steps necessary to effect the
registration of such Registrable Shares contemplated hereby.
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Each holder of the Registrable Shares, upon receipt of any notice from
the Corporation of any event of the kind described in Section 6(h) hereof, shall
forthwith discontinue disposition of the Registrable Shares pursuant to the
registration statement covering such Registrable Shares until such holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 6(h) hereof, and, if so directed by the Corporation, such holder shall
deliver to the Corporation all copies, other than permanent file copies then in
such holder's possession, of the prospectus covering such Registrable Shares at
the time of receipt of such notice.
SECTION 7. EXPENSES.
All expenses (other than underwriting discounts and commissions
relating to the Registrable Shares, as provided in the last sentence of this
Section 7) incurred by the Corporation in complying with Section 6, including,
without limitation, all registration and filing fees, fees and expenses of
complying with securities and blue sky laws, printing expenses, fees and
expenses of the Corporation's counsel and accountants and reasonable fees and
expenses of the Investors' Counsel, shall be paid by the Corporation in
connection with Registrations the costs of which the Corporation is required to
bear pursuant to Sections 2 and 3 hereof; provided, however, that all
underwriting discounts, selling commissions applicable to the Registrable Shares
and Other Shares shall become by the holders selling such Registrable Shares and
Other Shares, in proportion to the number of Registrable Shares and Other Shares
sold by each such holder.
SECTION 8. INDEMNIFICATION.
(a) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, the
Corporation shall indemnify and hold harmless the holders of
Registrable Shares, each underwriter, broker or any other person acting
on behalf of the holders of Registrable Shares and each other person,
if any, who controls any of the foregoing persons within the meaning of
the Securities Act against any losses, claims, damages or liabilities,
joint or several (or actions in respect thereof), to which any of the
foregoing persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or allegedly untrue statement of a material fact contained in
the registration statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or
final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or
arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or, with
respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading,
or any violation by the Corporation of the Securities Act or state
securities or blue sky laws applicable to the Corporation and relating
to action or inaction required of the Corporation in connection with
such registration or qualification under such state
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securities or blue sky laws; and shall reimburse the holders of
Registrable Shares, such underwriter, such broker or such other person
acting on behalf of the holders of Registrable Shares and each such
controlling person for any legal or other expenses reasonably
incurrwith investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Corporation shall not
be liable in any such case to the extent that any such loss, claim,
damage, liability or action (including any legal or other expenses
incurred) arises out of or is based upon an untrue statement or
allegedly untrue statement or omission or alleged omission made in said
registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in
conformity with written information furnished to the Corporation
through an instrument duly executed by any holder of Registrable Shares
or his or its counsel or underwriter specifically for use in the
preparation thereof; provided further, however, that the foregoing
indemnity agreement is subject to the condition that, insofar as it
relates to any untrue statement, allegedly untrue statement, omission
or alleged omission made in any preliminary prospectus but eliminated
or remedied in the final prospectus (filed pursuant to Rule 424 of the
Securities Act), such indemnity agreement shall not inure to the
benefit of any Investor, underwriter, broker or other person acting on
behalf of holders of the Restricted Shares from whom the person
asserting any loss, claim, damage, liability or expense purchased the
Restricted Shares which are the subject thereof, if a copy of such
final prospectus had been made available to such person and such
Investor, underwriter, broker or other person acting on behalf of
holders of the Registrable Shares and such final prospectus was not
delivered to such person with or prior to the written confirmation of
the sale of such Registrable Shares to such person.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of
Registrable Shares shall severally and not jointly indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph (a) of this Section 8) the Corporation, each
director of the Corporation, each officer of the Corporation who shall
sign such registration statement, each underwriter, broker or other
person acting on behalf of the holders of Registrable Shares and each
person who controls any of the foregoing persons within the meaning of
the Securities Act with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Commission, any amendment
or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, if such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Corporation or such underwriter specifically for use
in connection with the preparation of such registration statement,
preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the maximum amount of liability in
respect of such indemnification shall be limited, in the case of each
seller of Registrable Shares, to an amount equal to the net proceeds
actually received by such Seller from the sale of Registrable Shares
effected pursuant to such
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registration.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the
preceding paragraphs of this Section 8, such indemnified party will, if
a claim in respect thereof is made against an indemnifying party, give
written notice to the latter of the commencement of such action. The
failure of any indemnified party to notify an indemnifying party of any
such action shall not (unless such failure shall have a material
adverse effect on the indemnifying party) relieve the indemnifying
party from any liability in respect of such action that it may have to
such indemnified party on account of this Section 8. In case any such
action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection
with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more
legal or equitable defenses available to such indemnified party which
are additional to or conflict with those available to the indemnifying
party, or that such claim or litigation involves or could have an
effect upon matters beyond the scope of the indemnity agreement
provided in this Section 8, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such
indemnified party (but shall have the right to participate therein with
counsel of its choice) and such indemnifying party shall reimburse such
indemnified party and any person controlling such indemnified party for
that portiny counsel retained by the indemnified party which is
reasonably related to the matters covered by the indemnity agreement
provided in this Section 8. If the indemnifying party is not entitled
to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel with
respect to such claim.
(d) If the indemnification provided for in this Section 8 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage, liability or
action referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amounts paid or payable by such indemnified party as a result of such
loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party 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 indemnifying party or by the
indemnified party and the parties' relative intent, knowledge,
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access to information and opportunity to correct or prevent such
statement or omission. The parties agree that it would not be just and
equitable if contribution pursuant hereto were determined by pro rata
allocation or by any other method or allocation which does not take
account of the equitable considerations referred to herein). No person
guilty of fraudulent misrepresentation shall be entitled to
contribution from any person.
SECTION 9. UNDERWRITING AGREEMENT.
Notwithstanding the provisions of Sections 5, 6, 7 and 8, to the extent
that the Investors shall enter into an underwriting or similar agreement, which
agreement contains provisions covering one or more issues addressed in such
Sections, the provisions contained in such agreement addressing such issue or
issues shall control.
SECTION 10. INFORMATION BY HOLDER.
The Investors shall furnish to the Corporation such written information
regarding the Investors and the distribution proposed by the Investors as the
Corporation may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
SECTION 11. EXCHANGE ACT COMPLIANCE.
From the Registration Date or such earlier date as a registration
statement filed by the Corporation pursuant to the Exchange Act relating to any
class of the Corporation's securities shall have become effective, the
Corporation shall comply with all of the reporting requirements of the Exchange
Act applicable to it (whether or not it shall be required to do so, but
specifically excluding Section 14 of the Exchange Act if not then applicable to
the Corporation) and shall comply with all other public information reporting
requirements of the Commission which are conditions to the availability of Rule
144 for the sale of the Common Stock. The Corporation shall cooperate with the
Investors in supplying such information as may be necessary for the Investors to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of Rule 144.
SECTION 12. NO CONFLICT OF RIGHTS.
The Corporation shall not, after the date hereof, grant any
registration rights which conflict with or impair the registration rights
granted hereby.
SECTION 13. TERMINATION.
This Agreement shall terminate and be of no further force or effect
when there shall no longer be any Registrable Shares outstanding.
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SECTION 14. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of the Corporation
and the Investors and, subject to Section 15, the respective successors and
assigns of the Corporation and the Investors.
SECTION 15. ASSIGNMENT.
Each Investor may assign its rights hereunder to any purchaser or
transferee of Registrable Shares; provided, however, that such purchaser or
transferee shall, as a condition to the effectiveness of such assignment, be
required to execute a counterpart to this Agreement agreeing to be treated as an
Investor whereupon such purchaser or transferee shall have the benefits of, and
shall be subject to the restrictions contained in, this Agreement as if such
purchaser or transferee was originally included in the definition of an Investor
herein and had originally been a party hereto.
SECTION 16. ENTIRE AGREEMENT.
This Agreement, the Securities Purchase Agreement, and the Stockholders
Agreement (as defined in the Securities Purchase Agreement), each dated as of
the date hereof, and the other writings referred to herein or therein or
delivered pursuant hereto or thereto, contain the entire agreement among the
Investors and the Corporation with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 17. NOTICES.
All notices, requests, consents and other communications hereunder to
any party shall be deemed to be sufficient if contained in a written instrument
delivered in person or sent by telecopy, nationally-recognized overnight courier
or first class registered or certified mail, return receipt requested, postage
prepaid, addressed to such party at the address set forth below or such other
address as may hereafter be designated in writing by such party to the other
parties:
(i) if to the Corporation, to:
National Network Technologies Inc.
88 White Street
New York, NY 10013
Telephone: (212) 431-6007
Telecopy: (212) 334-0847
Attention: President
with a copy to:
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Christy & Viener
620 Fifth Avenue
New York, NY 10020
Telephone: (212) 632-5500
Telecopy: (212) 632-5555
Attention: John F. Cambria, Esq.
(ii) if to the Investors, to their respective addresses set
forth on Schedule I hereto, with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-2400
Telecopy: (212) 408-2420
Attention: Robert Seber, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery or delivery
by telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
SECTION 18. MODIFICATIONS; AMENDMENTS; WAIVERS.
The terms and provisions of this Agreement may not be modified or
amended, nor may any provision be waived, except pursuant to a writing signed by
the Corporation and the holders of at least 75% of the Registrable Shares then
outstanding.
SECTION 19. COUNTERPARTS; FACSIMILE SIGNATURES.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. Facsimile
counterpart signatures to this Agreement shall be acceptable at the Closing (as
defined in the Securities Purchase Agreement) if the originally executed
counterpart is delivered within a reasonable period thereafter.
SECTION 20. HEADINGS.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
14
<PAGE> 17
SECTION 21. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed wholly therein by residents thereof.
15
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
NATIONAL NETWORK TECHNOLOGIES
INC.
By: /s/ Hugh O'Kane, Jr.
-------------------------
Name: Hugh O'Kane, Jr.
Title: President
INVESTORS:
LAWRENCE, SMITH & HOREY III, L.P.
BY: LSH PARTNERS III, L.P.,
ITS GENERAL PARTNER
By: /s/ Richard W. Smith
----------------------------
Richard W. Smith
General Partner
ABBOTT CAPITAL 1330 INVESTORS I, LP
BY: ABBOTT CAPITAL 1330 GENPAR, LLC,
ITS GENERAL PARTNER
By: /s/ Thomas W. Hallagan
--------------------------------
Thomas W. Hallagan,
Its Manager
Registration Rights Agreement Signature Page
16
<PAGE> 19
SCHEDULE I
INVESTORS
Lawrence, Smith & Horey III, L.P.
Abbott Capital 1330 Investors I, LP
17
<PAGE> 1
EXHIBIT 4.3
- --------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
DATED AS OF JULY 23,1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section.1. Definitions .................................................. 1
Section.2. Limitations on Transfers of Stock by Restricted Stockholders.. 5
Section.3. Right of First Refusal; Restricted Stockholders' Shares ...... 5
Section.4. Rights of Co-Sale ............................................ 8
Section.5. Right of First Offer; Investor Shares ........................ 9
Section.6. Right of First Offer; Corporation Stock ...................... 10
Section.7. Voting Agreement ............................................. 11
Section.8. Legend on Stock Certificates ................................. 12
Section.9. Additional Shares of Stock, Etc. ............................. 13
Section.10. Duration of Agreement; Compliance ............................ 13
Section.11. Severability; Governing Law .................................. 13
Section.12. Successors and Assigns ....................................... 13
Section.13. Notices ...................................................... 14
Section.14. Modification ................................................. 15
Section.15. Headings ..................................................... 15
Section.16. Nouns and Pronouns ........................................... 15
Section.17. Entire Agreement ............................................. 15
Section.18. Counterparts ................................................. 15
</TABLE>
<PAGE> 3
STOCKHOLDERS' AGREEMENT dated as of
July 23, 1998, among NATIONAL NETWORK
TECHNOLOGIES INC., a Delaware corporation
(the "Corporation"), and the STOCKHOLDERS of
the Corporation identified on Annex I (each,
a "Stockholder," and, collectively, the
"Stockholders").
Each Stockholder owns, on the date hereof, that number of shares of Stock
(as hereinafter defined) set forth opposite such Stockholder's name on Annex I
hereto. It is deemed to be in the best interest of the Corporation and the
Stockholders that provision be made for the continuity and stability of the
business and policies of the Corporation, and, to that end, the Corporation and
the Stockholders hereby set forth their agreements with respect to the
ownership, voting and transfer of shares of Stock owned by the Stockholders.
NOW, THEREFORE, in consideration of the premises and of the mutual
consents and obligations hereinafter set forth, the parties hereto hereby agree
as follows:
Section 1. Definitions.
As used herein, the following terms shall have the following respective
meanings:
"Affiliate" means, with respect to any Person, any of (a) a director,
officer, member, manager or partner of such Person, (b) the spouse, lineal
descendant or adopted children of a Person who is an individual or a Person who
is an Affiliate of such Person by virtue of clause (a); or (c) any other Person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, another Person. The term
"control" includes, without limitation, the possession, directly or indirectly,
of the power to direct the management and policies of a Person, whether through
the ownership of voting securities or equity interests, by contract or
otherwise.
"Board" means the Board of Directors of the Corporation.
"Charter" shall mean the Amended and Restated Certificate of Incorporation
of the Corporation, as hereafter amended from time to time.
"Common Stock" shall mean the common stock, par value, $.001 per share, of
the Corporation.
"Executive Management Stockholders" means Hugh O'Kane, Jr. and Kevin
O'Kane. Each Executive Management Stockholder is also a Management Stockholder
hereunder.
<PAGE> 4
"Fair Value per Share" shall mean the fair value of each share of Stock,
as determined in good faith by the Board, including at least one member of the
Board designated by holders of Preferred Stock in accordance herewith.
"Group" shall mean:
(i) in the case of any Stockholder who is an individual, (A) such
Stockholder, (B) the spouse, lineal descendants and adopted children of such
Stockholder and (C) any entity established for the benefit of, or owned by, any
of the foregoing;
(ii) in the case of any Stockholder that is a partnership or limited
liability company, (A) such entity and any of its members or limited or general
partners, (B) any Person to which such partnership shall sell or transfer all or
substantially all of its assets or with which it shall be merged and (C) any
Affiliate of such partnership or limited liability company by virtue of the
operation of clause (c) of the definition of "Affiliate" only; and
(iii) in the case of any Stockholder that is a corporation, (A) such
corporation, (B) any Person to which such corporation shall sell or transfer all
or substantially all of its assets or with which it shall be merged and (C) any
Affiliate of such corporation by virtue of the operation of clause (c) of the
definition of "Affiliate" only.
"Investors" shall mean the Persons designated as such on Annex I hereto,
and shall include any successor to, or assignee or transferee of, any of the
Investors who shall agree in writing to be treated as an Investor and to be
bound by the terms and to comply with the provisions of this Agreement. Unless
such an assignee or transferee agrees to be so bound and to comply, any such
assignment or transfer by an Investor shall be null and void and shall not bind
any of the parties hereto.
"Liquidation" shall have the meaning set forth in the Charter.
"Management Stockholders" shall mean each Person acquiring Stock who shall
become a party hereto and who shall be designated a Management Stockholder on
Annex I hereto and each member of the Group related to each of such Persons.
"Outside Stockholders" shall mean each Person, other than a Stockholder
identified on Annex I or a member of the Group related to a Stockholder,
acquiring Stock who shall become a party hereto and who shall be designated an
Outside Stockholder and each member of the Group related to each of such
Persons.
"Person" shall mean any individual, partnership, limited liability
company, corporation, group, trust or other legal entity.
2
<PAGE> 5
"Preferred Stock" shall mean the Series A Preferred Stock, par value $.001
per share, of the Corporation.
"Proportionate Percentage" shall mean:
(a) for the purposes of Section 3(a)(i), the pro rata percentage of Stock
being offered by a Selling Group pursuant to Section 3(a)(i) that each
Restricted Stockholder (other than the Selling Group) shall be entitled to
purchase, which pro rata percentage, as to each such Restricted Stockholder,
shall be the percentage figure which expresses the ratio, on a Common Stock
equivalent basis (which for purposes of this Agreement shall mean after giving
effect to the conversion of all securities convertible into Common Stock and the
exercise of all options and warrants then exercisable for Common Stock), between
the number of shares of Stock (as so converted) owned by such Restricted
Stockholder and the aggregate number of shares of Stock (as so converted) owned
by all Restricted Stockholders at the date of determination;
(b) for the purposes of Section 3(a)(ii), the pro rata percentage of Stock
being offered by a Selling Group pursuant to Section 3(a)(ii) that each Investor
(other than the Selling Group) shall be entitled to purchase, which pro rata
percentage, as to each such Investor, shall be the percentage figure which
expresses the ratio, on a Common Stock equivalent basis (as described in clause
(a) above), between the number of shares of Stock owned by such Investor and the
aggregate number of shares of Stock owned by all Investors at the date of
determination;
(c) for the purposes of Section 3(b), the pro rata percentage of Stock
being offered by a Selling, Group pursuant to Section 3(b) that each Investor
(other than the Selling Group) shall be entitled to purchase, which pro rata
percentage, as to each such Investor, shall be the percentage figure which
expresses the ratio, on a Common Stock equivalent basis (as described in clause
(a) above), between the number of shares of Stock owned by such Investor and the
aggregate number of shares of Stock owned by all Investors at the date of
determination;
(d) for the purposes of Section 4(a), the pro rata percentage of the
number of shares of Stock to which a Section 4(a) Offer relates that each
Investor shall be entitled to Transfer to the Section 4(a) Offeror, which pro
rata percentage, as to each such Investor, shall be the percentage figure which
expresses the ratio, on a Common Stock equivalent basis (as described in clause
(a) above), between the number of shares of Stock owned by such Investor and the
aggregate number of shares of Stock owned by all Investors at the date of
determination;
(e) for the purposes of Section 4(b), the pro rata percentage of the
number of shares of Stock to which a Section 4(b) Offer relates that each
Investor shall be entitled to Transfer to the Section 4(b) Offeror, which pro
rata percentage, as to each such Investor, shall be the percentage figure which
expresses the ratio, on a Common Stock equivalent basis (as described in clause
(a) above), between the number of shares of Stock owned by such Investor and the
aggregate number of shares of Stock owned by all Investors other than the
Section 4(b) Offeree at the date of determination;
3
<PAGE> 6
(f) for the purposes of Section 5, the pro rata percentage of Stock being
offered by a Section 5 Offeree pursuant to Section 5 that each Management
Stockholder shall be entitled to purchase, which pro rata percentage, as to each
such Management Stockholder, shall be the percentage figure which expresses the
ratio, on a Common Stock equivalent basis (as described in clause (a) above),
between the number of shares of Stock owned by such Management Stockholder and
the aggregate number of shares of Stock owned by all Management Stockholders at
the date of determination; and
(g) for the purposes of Section 6, the pro rata percentage of Stock
subject to purchase pursuant to Section 6 that each Investor shall be entitled
to purchase, which pro rata percentage, as to each such Investor, shall be the
percentage figure which expresses the ratio, on a Common Stock equivalent basis
(as described in clause (a) above), between the number of shares of Stock owned
by such Investor and the aggregate number of shares of Stock owned by all
Investors at the date of determination.
"Purchase Agreement" shall mean the Securities Purchase Agreement dated as
of the date hereof, between the Corporation and the purchasers named therein,
among others.
"Qualified Public Offering" shall have the meaning set forth in the
Charter.
"Restricted Stockholders" shall mean Management Stockholders and Outside
Stockholders.
"Selling Group" shall mean a Stockholder or a member of the Group related
to a Stockholder proposing to Transfer its Stock, or which has delivered a
notice of intention to Transfer, pursuant to Section 3 or Section 5 hereof, as
the case may be.
"Stock" shall mean (a) the presently issued and outstanding shares of
Common Stock and Preferred Stock and any options or stock subscription warrants
exercisable therefor (which options and warrants shall be deemed to be that
number of outstanding shares of Stock for which they are exercisable), (b) any
additional shares of capital stock of the Corporation hereafter issued and
outstanding and (c) any shares of capital stock of the Corporation into which
such shares may be converted or for which they may be exchanged or exercised.
"Stockholders" shall mean those persons identified on Annex I and shall
include any other Person that owns Stock and agrees in writing to be bound by
and to comply with all applicable provisions of this Agreement as a Stockholder
hereunder.
"Transfer," as to any Stock, shall mean to sell, or in any other way
transfer, assign, pledge, distribute, encumber or otherwise dispose of, such
Stock, either voluntarily or involuntarily, and with or without consideration.
4
<PAGE> 7
Section 2. Limitations on Transfers of Stock by Restricted Stockholders.
The Restricted Stockholders shall not, at any time during the term of this
Agreement, Transfer any Stock without the prior written consent of the holders
of at least seventy-five percent of the then outstanding Preferred Stock and
without first complying with the provisions of Sections 3 and 4; provided, that
a Restricted Stockholder may Transfer Stock to (a) an Affiliate of the
Restricted Stockholder or (b) another member of the Group related to such
Restricted Stockholder, in each case without such consent and without complying
with Sections 3 and 4 of this Agreement, in each case if the recipient of such
Stock shall agree in writing to be bound by and to comply with all applicable
provisions of this Agreement and to be deemed a Restricted Stockholder
hereunder. Notwithstanding anything contained herein to the contrary, each
Executive Management Stockholder will have the right to Transfer without
restriction hereunder or under Section 3 or 4, Stock aggregating up to (and
including) 20% of the Stock held by such Executive Management Stockholder on the
date hereof.
Section 3. Right of First Refusal; Restricted Stockholders' Shares.
(a) Except as otherwise provided in Section 2, a Restricted Stockholder
shall not transfer any Stock, except in accordance with the applicable
procedures in this Section 3.
(i) In the event such Restricted Stockholder receives an offer from
a Person to acquire any Stock of such Stockholder and such
Stockholder intends to accept such offer, the Selling Group shall
first deliver to the Corporation, the other non-selling Restricted
Stockholders (the "Other Restricted Stockholders") and the Investors
a written notice (the "Section 3(a) Offer Notice"), which shall be
irrevocable for a period of 30 days after delivery thereof, offering
(the "Section 3(a) Offer") all of the Stock proposed to be
Transferred by the Selling Group at the purchase price and on the
terms specified therein (such Section 3(a) Offer Notice shall
include the foregoing information and all other relevant terms of
the proposed Transfer). The Other Restricted Stockholders shall have
the right and option, for a period of 30 days after receipt of a
Section 3(a) Offer Notice, (i) to accept all or any part of its
Proportionate Percentage of the Stock so offered at the purchase
price and on the terms stated in the Section 3(a) Offer Notice, and
(B) to offer, in any written notice of acceptance, to purchase any
of such Stock not accepted by any of the Other Restricted
Stockholders, in which case such Stock not accepted by any of the
Other Restricted Stockholders shall be deemed to have been offered
to and accepted by the Other Restricted Stockholders which exercised
their options under this clause (B) pro rata in accordance with
their respective Proportionate Percentages (computed without
including the Other Restricted Stockholders who have not exercised
their options to purchase Stock under clause (B) of this
subparagraph (a)(i)), on the above-described terms and conditions.
Such acceptance shall be made by delivering a written notice to the
Corporation and the Selling Group within said 30-day period.
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<PAGE> 8
(ii) If the Other Restricted Stockholder(s) shall fail to accept all
of the Stock offered for sale pursuant to, or shall reject in
writing, the Section 3(a) Offer, then, upon the earlier of the
expiration of such 30-day period or the receipt of such written
notice of rejection or failure to accept such offer by the Other
Restricted Stockholder(s), the Investors shall have the right and
option, for a period of 30 days after the expiration of the above 30
days (A) to accept all or any part of its Proportionate Percentage
of such Stock so offered and not accepted by the Other Restricted
Stockholder(s) at the purchase price and on the terms stated in the
Section 3 (a) Offer Notice and (ii) to offer, in any written notice
of acceptance, to purchase any of such Stock not accepted by the
other Investors, in which case such Stock not accepted by the other
Investors shall be deemed to have been offered to and accepted by
the Investors which exercised their option under this clause (B) pro
rata in accordance with their respective Proportionate Percentage
(computed without including the other Investors who have not
exercised their option to purchase stock under clause (B) of this
subparagraph (a)(ii)), on the above described terms and conditions.
Such acceptance shall be made by delivering a written notice to the
Corporation and the Selling Group within said 30-day period.
(b) The Investors shall have a right of first refusal on Investors' shares
as follows:
(i) In the event that any Investor receives an offer from a Person
to acquire any Stock of such Investor and such Investor intends to
accept such offer, the Selling Group shall first deliver to the
Corporation and other non-selling Investors (the "Other Investors")
written notice (the "Section 3(b) Offer Notice" and, for purposes of
Sections 3(c) through 3(f) hereof, together with the Section 3(a)
Notice, the "Section 3 Notices") which shall be irrevocable for a
period of 30 days after delivery thereof, offering (the "Section
3(b) Offer") all of the Stock proposed to be transferred by the
Selling Group at the purchase price and on the terms specified
therein (such Section 3(b) Offer shall include the foregoing
information and all other terms of the Proposed Transfer). The Other
Investors shall have the right and option, for a period of 30 days
after receipt of a Section 3(b) Offer Notice, (i) to accept all or
any part of its Proportionate Percentage of the Stock so offered at
the purchase price and on the terms stated in the Section 3(b) Offer
Notice, and (ii) to offer, in any written notice of acceptance, to
purchase any of such stock not accepted by any of the Other
Investors, in which case such Stock not accepted by any of the Other
Investors shall be deemed to have been offered to and accepted by
the Other Investors which exercised their options under this clause
(ii) pro rata in accordance with their respective Proportionate
Percentages (computed without including the Other Investors who have
not exercised their options to purchase Stock under clause (ii) of
this subparagraph (b)); on the above-described terms and conditions.
Such acceptance shall be made by
6
<PAGE> 9
delivering a written notice to the corporation and the Selling group
within said 30-day period.
(ii) If the Other Investor(s) shall fail to accept all of the Stock
offered for sale pursuant to, or shall reject in writing, the
Section 3(b) Offer, then, upon the earlier of the expiration of such
30-day period or the receipt of such written notice of rejection or
failure to accept such offer by any of the Other Investor(s), each
Investor shall have the right and option, for a period of 30 days
after the expiration of the above 30 days to offer, in any written
notice of acceptance, to purchase any of such Stock not accepted by
the other Investors, in which case such Stock not accepted by the
Other Investors shall be deemed to have been offered to and accepted
by the Investors which exercised their options under this clause
(ii) pro rata in accordance with their respective Proportionate
Percentages (computed without including the Other Investors who have
not exercised their option to purchase stock under this subparagraph
(b)(ii)), on the above described terms and conditions. Such
acceptance shall be made by delivering a written notice to the
Corporation and the Selling Group within said 30-day period.
(c) A notice of acceptance delivered by any of the Other Restricted
Stockholders or the Investors pursuant to Sections 3(a) or 3(b), as the case may
be, shall be a binding commitment to purchase the Stock referred to therein.
(d) Transfers of Stock under the terms of Sections 3(a) and 3(b) shall be
made at the offices of the Corporation on a mutually satisfactory business day
within 30 days after the expiration of the last applicable period described in
Section 3(a) or Section 3(b), as the case may be. Delivery of certificates or
other instruments evidencing such Stock duly endorsed for Transfer shall be made
on such date against payment of the purchase price therefor.
(e) If effective acceptance shall not be received pursuant to Section 3(a)
or Section 3(b), as the case may be, with respect to all Stock offered for sale
pursuant to the Section 3 Offer Notices, then (subject, for events pursuant to
Section 3(b), to Section 5 with respect to the Investors' shares of Preferred
Stock) the Selling Group may Transfer all or any part of the Stock so offered
and not so accepted at a price not less than the price, and on terms not more
favorable to the purchaser thereof than upon the terms, stated in the Section 3
Offer Notices at any time within 30 days after the expiration of the offers
required by Sections 3(a) and 3(b). In the event that the Stock is not
Transferred by the Selling Group during such 30-day period, the right of the
Selling Group to Transfer such Stock shall expire and the obligations of this
Section 3 shall be reinstated.
(f) Anything contained herein to the contrary notwithstanding, any
purchaser of Stock pursuant to Section 3 who is not a Stockholder shall agree in
writing in advance with the parties hereto to be bound by and comply with all
applicable provisions of this Agreement and shall be deemed to be a Restricted
Stockholder for all purposes of this Agreement.
7
<PAGE> 10
Section 4. Rights of Co-Sale.
(a) In the event that any Restricted Stockholder (hereinafter, the
"Section 4(a) Offeree") receives an offer (the "Section 4(a) Offer") from a
third party (other than a Person to whom Stock may be freely Transferred
pursuant to Section 2, and other than for Stock that may be freely Transferred
pursuant to Section 2) (the "Section 4(a) Offeror") to purchase from such
Section 4(a) Offeree shares of Stock representing any of the shares of Stock
held by such Stockholder for a specified price payable in cash or otherwise and
on specified terms and conditions, such Section 4(a) Offeree shall promptly
forward a notice (the "Section 4(a) Notice") complying with Section 4(c) to the
Corporation and the Investors. Subject to Section 4(d), the Section 4(a) Offeree
shall not Transfer any Stock to the Section 4(a) Offeror unless the terms of the
Section 4(a) Offer are extended to the Investors with respect to their
Proportionate Percentage of the aggregate number of shares of Stock (on a Common
Stock equivalent basis) to which the Section 4(a) Offer relates, whereupon each
Investor shall be entitled to Transfer to the Section 4(a) Offeror pursuant to
the Section 4(a) Offer the Investor's Proportionate Percentage of the aggregate
number of shares of Stock (on a Common Stock equivalent basis) to which the
Section 4(a) Offer relates.
(b) In the event that any Investor (hereinafter, the "Section 4(b)
Offeree," and, for the purposes of Sections 4(c) and 4(d) hereof, together with
the Section 4(a) Offeree, the "Section 4 Offerees") receives an offer (the
"Section 4(b) Offer," and, for the purposes of Sections 4(c) and (d) hereof,
together with the Section 4(a) Offer, the "Section 4 Offers") from a third party
that is not a member of the Group related to such Stockholder (the "Section 4(b)
Offeror," and, for the purposes of Sections 4(c) and (d) hereof, together with
the Section 4(a) Offeror, the "Section 4 Offerors") to purchase from such
Section 4(b) Offeree shares of Stock representing any of the shares of Stock
held by such Stockholder for a specified price payable in cash or otherwise and
on specified terms and conditions, such Section 4(b) Offeree shall promptly
forward a notice (the "Section 4(b) Notice," and, for the purposes of Sections
4(c) and (d) hereof together with the Section 4(a) Notice, the "Section 4
Notices") complying with Section 4(c) to the Corporation and the Investors.
Subject to Section 4(d), the Section 4(b) Offeree shall not Transfer any Stock
to the Section 4(b) Offeror unless the terms of the Section 4(b) Offer are
extended to the other Investors with respect to their Proportionate Percentage
of the aggregate number of shares of Stock (on a Common Stock equivalent basis)
to which the Section 4(b) Offer relates, whereupon each other Investor shall be
entitled to Transfer to the Section 4(b) Offeror pursuant to the Section 4(b)
Offer the Investor's Proportionate Percentage of the aggregate number of shares
of Stock (on a Common Stock equivalent basis) to which the Section 4(b) Offer
relates.
(c) Any Section 4 Notices shall set forth, as appropriate, (i) the number
of shares of Stock to which the applicable Section 4 Offer relates and the name
of the applicable Section 4 Offeree, (ii) the name and address of the applicable
Section 4 Offeror, (iii) the proposed amount and type of consideration
(including, if the consideration consists in whole or in part of non-cash
consideration, such information available to such Section 4 Offeree as may be
reasonably necessary for the Investors to properly analyze the economic value
and investment risk of such
8
<PAGE> 11
non-cash consideration) and the terms and conditions of payment offered by such
Section 4 Offeror and (iv) that such Section 4 Offeror has been informed of the
co-sale rights provided for in this Section 4 and has agreed to purchase Stock
in accordance with the terms of this Section 4.
(d) Anything contained herein to the contrary notwithstanding, the Section
4 Offerees shall, in addition to complying with the provisions of this Section
4, comply with the provisions of Section 3 (it being understood that the Section
3 Offer Notice contemplated by Section 3(a) and the Section 4 Notices may be
included in a single notice), and each Restricted Stockholder, prior to
Transferring any Stock to the Section 4(a) Offeror, shall comply with the
provisions of Section 3.
(e) Anything contained herein to the contrary notwithstanding, any
purchaser of Stock pursuant to this Section 4 which is not a Stockholder shall
agree in writing to be bound by all applicable provisions of this Agreement and
shall be deemed to be a Stockholder for all purposes of this Agreement.
Section 5. Right of First Offer; Investor Shares.
(a) At any time prior to a Qualified Public Offering or a Liquidation,
none of the Investors shall sell or transfer all or any part of its Preferred
Stock to any third party which is not then a member of the Group related to such
Investor (a "Section 5 Offeree"), unless such Investor shall have first offered
to sell such Preferred Stock to the Management Stockholders (the "Section 5
Offered Securities"), at each Management Stockholder's Proportional Percentage
at a price and on such other terms and conditions as shall have been specified
by such Investor in writing delivered to each Management Stockholder (the
"Section 5 Offer"), which such Section 5 Offer by its terms shall remain open
and irrevocable for a period of 30 days from the date it is delivered by the
Investor to the Management Stockholders.
(b) The Investor may specify in the Section 5 Offer that all or a minimum
amount of the Section 5 Offered Securities must be sold in such offering (to the
Management Stockholders and/or any third parties pursuant to Section 5(d)), in
which case any Section 5 Notice of Acceptance (as defined below) shall be deemed
conditioned upon (i) receipt of Section 5 Notices of Acceptance of all or such
minimum amount, as applicable, of the Section 5 Offered Securities and/or (ii)
the sale of all, or such minimum amount, as applicable, of the Section 5 Offered
Securities pursuant to Section 5(d).
(c) Notice of the Management Stockholders' intention to accept, in whole
or in part, a Section 5 Offer shall be evidenced by a writing signed by such
Management Stockholder and delivered to the Corporation prior to the end of the
30-day period of such Section 5 Offer, setting forth such portion of the Section
5 Offered Securities the Management Stockholders elect to purchase (the "Section
5 Notice of Acceptance").
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<PAGE> 12
(d) In the event that Section 5 Notices of Acceptance are not given by the
Management Stockholders in respect of all the Section 5 Offered Securities, the
Investors shall have 120 days from the expiration of the foregoing 30-day period
to sell all or any part of such Section 5 Offered Securities as to which Section
5 Notice of Acceptances have not been given by the Management Stockholders (the
"Section 5 Refused Securities") to any other Person or Persons, but only upon
terms and conditions in all material respects, including, without limitation,
unit price, which are no more favorable to such other Person or Persons and no
less favorable to the Investor(s) than those set forth in the Section 5 Offer.
Upon the closing, which shall include full payment to the Investor(s), of the
sale to such other Person or Persons of all the Refused Securities, the
Management Stockholders shall purchase from the Investors, and the Investors
shall sell to the Management Stockholders, the Section 5 Offered Securities in
respect of which Section 5 Notice of Acceptances were delivered to the Investors
by the Management Stockholders, at the terms specified in the Section 5 Offer.
Section 6. Right of First Offer; Corporation Stock.
(a) Except in the case of Excluded Securities (as hereinafter defined),
the Corporation shall not issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange, any (i) Stock,
(ii) any other equity security of the Corporation, (iii) any debt security of
the Corporation which by its terms is convertible into or exchangeable for any
equity security of the Corporation or has any other equity feature, (iv) any
security of the Corporation that is a combination of a debt and equity security
or (v) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any security of the Corporation specified in the foregoing
clauses (i) through (iv), unless in each case the Corporation shall have first
offered to sell such securities to the Investors (the "Section 6 Offered
Securities"), at each Investor's respective Proportional Percentage at a price
and on such other terms and conditions as shall have been specified by the
Corporation in writing delivered to each Investor (the "Section 6 Offer"), which
Offer by its terms shall remain open and irrevocable for a period of 30 days
from the date it is delivered by the Corporation to the Investors.
(b) The Corporation may specify in the Section 6 Offer that all or a
minimum amount of the Section 6 Offered Securities must be sold in such offering
(to the Investors and/or any third parties pursuant to Section 6(d)), in which
case any Section 6 Notice of Acceptance (as defined below) shall be deemed
conditioned upon (i) receipt of Section 6 Notices of Acceptance of all or such
minimum amount, as applicable, of the Section 6 Offered Securities and/or (ii)
the sale of all, or such minimum amount, as applicable, of the Section 6 Offered
Securities pursuant to Section 6(d).
(c) Notice of the Investor's intention to accept, in whole or in part, a
Section 6 Offer shall be evidenced by a writing signed by such Investor and
delivered to the Corporation prior to the end of the 30-day period of such
Offer, setting forth such portion of the Section 6 Offered Securities the
Investors elect to purchase (the "Notice of Acceptance").
10
<PAGE> 13
(d) In the event that Notice of Acceptance is not given by the Investor(s)
in respect of all the Offered Securities, the Corporation shall have 120 days
from the expiration of the foregoing 30-day period to sell all or any part of
such Section 6 Offered Securities as to which Section 6 Notice of Acceptances
have not been given by the Investor(s) (the "Section 6 Refused Securities") to
any other Person or Persons, but only upon terms and conditions in all material
respects, including, without limitation, unit price and interest rates, which
are no more favorable to such other Person or Persons and no less favorable to
the Corporation than those set forth in the Section 6 Offer. Upon the closing,
which shall include full payment to the Corporation, of the sale to such other
Person or Persons of all the Section 6 Refused Securities, the Investors shall
purchase from the Corporation, and the Corporation shall sell to the Investors,
the Section 6 Offered Securities in respect of which Section 6 Notice of
Acceptances were delivered to the Corporation by the Investors, at the terms
specified in the Section 6 Offer.
(e) In each case, any Section 6 Offered Securities not purchased by the
Investors or any other Person or Persons in accordance with Section 6(d) may not
be sold or otherwise disposed of until they are again offered to the Investors
under the procedures specified in Sections 6(a), (c) and (d).
(f) The rights of the Investors under this Section 6 shall not apply to
the following securities (the "Excluded Securities"):
(i) (A) up to a total of 2,288,000 shares (as adjusted equitably for
stock dividends, stock splits, combinations, etc.) of Common Stock
available for issuance pursuant to awards of stock-based
compensation or incentives granted under plans for the benefit of
directors, officers and employees of the Corporation or its
subsidiaries pursuant to and in accordance with Stock Incentive
Plans duly authorized by the Board and/or the appropriate committee
thereof, and (B) shares of Stock issued upon conversion of shares of
Preferred Stock, including in the case of both (A) and (B), any
additional shares of Common Stock as may be issued by virtue of
antidilution provisions, if any, applicable to such options or
shares, as the case may be;
(ii) Stock issued as a stock dividend or upon any stock, split or
other subdivision or combination of shares of Stock; and
(iii) Stock issued pursuant to a Qualified Public Offering.
Section 7. Voting Agreement.
Each Stockholder shall vote all of his or its Stock and shall take all
other necessary or desirable actions within his or its control (whether in such
Stockholder's capacity as a stockholder of the Corporation or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu
11
<PAGE> 14
of meetings), and the Corporation shall take all necessary and desirable actions
within its control (including, without limitation, calling special Board and
Stockholder meetings), so that:
(a) the authorized number of directors on the Board shall be established
at no less than seven directors;
(b) three representatives designated by the holders of seventy-five
percent of the Preferred Stock shall be elected to the Board in accordance with
the terms of the Charter, at least one of which directors shall be (i) a third
party that is unaffiliated, independent and unrelated to any of the holders of
Preferred Stock and (ii) subject to the prior approval of the Management
Stockholders, which approval shall not be unreasonably delayed or withheld; and
(c) four representatives designated by the holders of a majority of the
shares then held by the Management Stockholders shall be elected to the Board at
least two of which directors shall be (i) third parties that are unaffiliated,
independent and unrelated to any of the Corporation or any Management
Stockholder and (ii) subject to the prior approval of the holders of a majority
of the Preferred Stock then outstanding which approval shall not be unreasonably
delayed or withheld.
(d) Each Stockholder shall vote his, her or its shares of Stock (i) to
remove any director whose removal is required by the party or parties with the
power to designate such director and (ii) to fill any vacancy created by the
removal, resignation or death of a director, in each case, for the election of a
new director designated and approved, if approval is required, in accordance
with the provisions of this Section 7. Vacancies of the Board shall be filled
within thirty (30) days of the date such vacancy is created or immediately
before the first action to be taken by the Board after the date such vacancy is
created.
(e) In the event that the Corporation acquires or creates any subsidiary,
the Corporation and the Stockholders shall use their best efforts, in their
capacity as a stockholder, partner or member of each such subsidiary, to cause
the composition of the board of directors or equivalent governing body of such
subsidiary to be identical or as nearly identical as possible, to the
composition of the Board. In the event the Board creates or elects to create any
committee of the Board or any committee of any subsidiary board of directors,
any such committee shall reasonably reflect the voting composition of the Board
or as otherwise agreed by six (6) out of seven (7) members of the Board.
Section 8. Legend on Stock Certificates.
Each certificate representing shares of Stock shall bear a legend
containing the following words (in addition to any other legend required by law
or applicable agreement):
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR
ENCUMBRANCE OF THE SECURITIES REPRESENTED BY
12
<PAGE> 15
THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A STOCKHOLDERS' AGREEMENT
DATED AS OF JULY __, 1998, AMONG NATIONAL
NETWORK TECHNOLOGIES INC. AND CERTAIN
HOLDERS OF THE OUTSTANDING CAPITAL STOCK OF
SUCH CORPORATION. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF SUCH
CORPORATION."
Section 9. Additional Shares of Stock, Etc.
In the event additional shares of Stock are issued by the Corporation to a
Stockholder or any employee of the Corporation at any time during the term of
this Ageement, either directly or upon the exercise or exchange of securities of
the Corporation exercisable for or exchangeable into shares of Stock, the
Corporation shall require such additional shares of Stock, as a condition to
such issuance, to become subject to the terms and provisions of this Agreement.
Section 10. Duration of Agreement; Compliance.
The rights and obligations of each Stockholder under this Agreement shall
terminate as to such Stockholder upon the earliest to occur of (a) the Transfer
of all Stock owned by such Stockholder, (b) the tenth anniversary of the date
hereof, (c) the date on which less than one-third of the aggregate number of
Preferred Shares issued to the Investors and outstanding as of the date hereof
remains issued and outstanding and (d) a Qualified Public Offering.
Section 11. Severability; Governing Law.
If any provision of this Agreement shall be determined to be illegal and
unenforceable by any court of law, the remaining provisions shall be severable
and enforceable in accordance with their terms. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of New
York, applicable to agreements made and fully to be performed therein by
residents thereof, except to the extent that this Agreement relates to the
internal laws of the Corporation, which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
Section 12. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the parties and
their respective successors and permitted assigns, transferees, legal
representatives and heirs.
13
<PAGE> 16
Section 13. Notices.
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person or by telecopy or sent by nationally-recognized overnight
courier or first class registered or certified mail, return receipt requested,
postage prepaid, addressed to such party at the address set forth below or at
such other address as may hereafter be designated in writing by such party to
the other parties:
if to the Corporation, to:
National Network Technologies Inc.
88 White Street
New York, NY 10013
Telephone: (212) 431-6007
Telecopy: (212) 334-0847
Attention: President
with a copy to:
Christy & Viener
620 Fifth Avenue
New York, NY 10020
Telephone: (212) 632-5500
Telecopy: (212) 632-5555
Attention: John F. Cambria, Esq
if to the Investors, to their respective addresses set forth on Schedule I
hereto with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-2400
Telecopy: (212) 408-2420
Attention: Robert Seber, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
14
<PAGE> 17
Section 14. Modification.
Except as otherwise provided herein, neither this Agreement nor any
provisions hereof can be modified, changed, discharged or terminated except by
an instrument in writing signed by (a) the Corporation, (b) the holders of at
least seventy-five percent of the Stock then held by the Investors, and (c) the
Executive Management Stockholders; provided, however, that no modification or
amendment shall be effective to reduce the percentage of the shares of Stock the
consent of the holders of which is required under this Section 14.
Section 15. Headings.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
Section 16. Nouns and Pronouns.
Whenever the context may require, any pronouns used herein shall include
the corresponding masculine, feminine or neuter forms, and the singular form of
names and pronouns shall include the plural and vice versa.
Section 17. Entire Agreement.
This Agreement and the other writings referred to herein or delivered
pursuant hereto contain the entire agreement among the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements and understandings with respect thereto.
Section 18. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
* * * * * *
15
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement on the date first above written.
NATIONAL NETWORK TECHNOLOGIES
INC.
By: /s/ Hugh O'Kane, Jr.
----------------------------
Name: Hugh O'Kane, Jr.
Title: President
16
<PAGE> 19
INVESTORS:
LAWRENCE, SMITH & HOREY III, L.P.
BY: LSH PARTNERS III, L.P.,
ITS GENERAL PARTNER
By: /s/ Richard W. Smith
-----------------------------
Richard W. Smith
General Partner
17
<PAGE> 20
ABBOTT CAPITAL 1330 INVESTORS I, LP
BY: ABBOTT CAPITAL 1330 GENPAR, LLC,
ITS GENERAL PARTNER
By: /s/ Thomas W. Hallagan
___________________________________
Thomas W. Hallagan,
Its Manager
18
<PAGE> 21
MANAGEMENT STOCKHOLDERS
By: /s/ Hugh O'Kane, Jr.
___________________________________
Hugh O'Kane, Jr.
19
<PAGE> 22
By: /s/ Kevin O'Kane
________________________________________
Kevin O'Kane
20
<PAGE> 23
By: /s/ Denis O'Kane
________________________________________
Denis O'Kane
21
<PAGE> 24
ANNEX I
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SERIES A
CONVERTIBLE
STOCKHOLDERS PREFERRED STOCK COMMON STOCK
- --------------------------------------------------------------------------------
INVESTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
Lawrence, Smith & Horey III, 1,685,618
L.P.
- --------------------------------------------------------------------------------
Abbott Capital 1330 Investors I, 3,852,840
L.P.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT STOCKHOLDERS
- --------------------------------------------------------------------------------
Hugh O'Kane, Jr.
- --------------------------------------------------------------------------------
Kevin O'Kane
- --------------------------------------------------------------------------------
Denis O'Kane
- --------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT
AMENDMENT NO. 1, dated JANUARY 13, 2000, to the STOCKHOLDERS' AGREEMENT,
dated as of July 23, 1998 (as amended to date, the "Stockholders' Agreement"),
among Lexent Inc. (known in the original Stockholders' Agreement as National
Network Technologies Inc.) (the "Corporation"), and the Stockholders of the
Corporation identified on the signature pages hereto (each a "Stockholder" and
collectively, the "Stockholders").
WHEREAS, the Executive Management Stockholders, Allegra Capital Partners
III, L.P. (known in the original Stockholders' Agreement as Lawrence, Smith &
Horey III, L.P.) ("Allegra III") and Allegra Capital Partners IV, L.P. ("Allegra
IV") have entered into a Securities Purchase Agreement dated as of the date
hereof, whereby Allegra III and Allegra IV have agreed to purchase an aggregate
of 300,000 shares of Common Stock (the "Shares"), par value $.001 per share, of
the Corporation from the Executive Management Stockholders; and
WHEREAS, the parties hereto desire to amend the Stockholders' Agreement
to (i) include Allegra IV as a party thereto for purposes of Section 7 and
Sections 10 through 18, (ii) amend the provisions of the voting agreement
contained in Section 7 and (iii) amend the definition of Excluded Securities.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used herein without definition
shall have the meanings ascribed to them in the Stockholders' Agreement.
SECTION 2. Joinder; Treatment of the Shares. Allegra IV shall be deemed
a "Stockholder" under the Stockholders' Agreement solely for purposes of Section
7 and Sections 10 through 18 thereof. Allegra IV hereby confirms and agrees to
be bound by Section 7 and Sections 10 through 18 of the Stockholders' Agreement.
Other than for purposes of Section 7 of the Stockholders' Agreement, the Shares
shall not be subject to the provisions of the Stockholders' Agreement, nor shall
the holders of the Shares have any of the benefits of the Stockholders'
Agreement or be subject to any of its restrictions or obligations with respect
to the Shares.
SECTION 3. Amendment to Section 7. Section 7 of the Stockholders'
Agreement is hereby amended to read in its entirety as follows:
<PAGE> 26
"Section 7. Voting Agreement.
(a) Each Stockholder shall vote all of his, her or its Stock and shall
take all other necessary or desirable actions within his, her or its control
(whether in such Stockholder's capacity as a stockholder of the Corporation or
otherwise, and including, without limitation, attendance at meetings in person
or by proxy for purposes of obtaining a quorum and execution of written consents
in lieu of meetings), and the Corporation shall take all necessary and desirable
actions within its control (including, without limitation, calling special Board
and Stockholder meetings), so that:
(i) the authorized number of directors on the Board shall be
established at no less than seven directors;
(ii) three representatives designated by the holders of
seventy-five percent of the Preferred Stock shall be elected to the
Board in accordance with the terms of the Charter, one of which shall be
designated by Abbott Capital 1330 Investors I, L.P., one of which shall
be designated by Allegra IV and at least one of which directors shall be
(A) a third party that is unaffiliated, independent and unrelated to any
of the holders of Preferred Stock and (B) subject to the prior approval
of the Management Stockholders, which approval shall not be unreasonably
delayed or withheld; and
(iii) four representatives designated by the holders of a
majority of the shares then held by the Management Stockholders shall be
elected to the Board at least two of which directors shall be (A) third
parties that are unaffiliated, independent and unrelated to any of the
Corporation or any Management Stockholder and (B) subject to the prior
approval of the holders of a majority of the Preferred Stock then
outstanding, which approval shall not be unreasonably delayed or
withheld.
(b) Each Stockholder shall vote his, her or its Stock (i) to remove any
director whose removal is required by the party or parties with the power to
designate such director and (ii) to fill any vacancy created by the removal,
resignation or death of a director, in each case, for the election of a new
director designated and approved, if approval is required, in accordance with
the provisions of this Section 7. Vacancies of the Board shall be filled within
thirty (30) days of the date such vacancy is created or immediately before the
first action to be taken by the Board after the date such vacancy is created.
(c) In the event that the Corporation acquires or creates any
subsidiary, the Corporation and the Stockholders shall use their best efforts,
in their capacity as a stockholder, partner or member of each such subsidiary,
to cause the composition of the board of directors or equivalent governing body
of such subsidiary to be identical or as nearly identical as possible, to the
composition of the Board. In the event the Board creates or elects to create any
committee of the
-2-
<PAGE> 27
Board or any committee of any subsidiary board of directors, any such committee
shall reasonably reflect the voting composition of the Board or as otherwise
agreed by six (6) out of seven (7) members of the Board."
SECTION 4. Amendment to Section 6. Subsection (f) of Section 6 of the
Stockholders' Agreement is hereby amended to read in its entirety as follows:
"(f) The rights of the Investors under this Section 6 shall not apply to
the following securities (the "Excluded Securities"):
(i) (A) up to a total of 4,800,000 shares (as adjusted equitably
for stock dividends, stock splits, combinations, etc.) of Common Stock
available for issuance pursuant to awards of stock-based compensation or
incentives granted under plans for the benefit of directors, officers
and employees of the Corporation or its subsidiaries pursuant to and in
accordance with Stock Incentive Plans duly authorized by the Board
and/or the appropriate committee thereof, and (B) shares of Stock issued
upon conversion of shares of Preferred Stock, including in the case of
both (A) and (B), any additional shares of Common Stock as may be issued
by virtue of antidilution provisions, if any, applicable to such options
or shares, as the case may be;
(ii) Stock issued as a stock dividend or upon any stock split or
other subdivision or combination of shares of Stock;
(iii) Up to a total of 215,000 shares of Common Stock to be
issued to Alf Hansen for a purchase price of not less than $10.00 per
share; and
(iv) Stock issued pursuant to a Qualified Public Offering."
SECTION 5. Amendment to Section 10. Section 10 of the Stockholders'
Agreement is hereby amended to read in its entirety as follows:
"The rights and obligations of each Stockholder under this Agreement
shall terminate as to such Stockholder upon the earliest to occur of (a) the
Transfer of all Stock owned by such Stockholder (and, in the case of Allegra
IV's right to designate a director pursuant to Section 7, the Transfer of all
Stock owned by Allegra III to any party which is not part of Allegra III's or
Allegra IV's Group), (b) the tenth anniversary of the date hereof, (c) the date
on which less than one-third of the aggregate number of Preferred Shares issued
to the Investors and outstanding as of the date hereof remains issued and
outstanding and (d) a Qualified Public Offering."
SECTION 6. Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles.
-3-
<PAGE> 28
SECTION 7. Original Agreement. Except as amended or modified pursuant to
this Amendment, the terms of the Stockholders' Agreement shall remain in full
force and effect.
SECTION 8. Counterparts; Effectiveness. This Amendment may be executed
in any number of counterparts, each of which shall be an original with the same
effect as if the signatures thereto and hereto were upon the same instrument.
-4-
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
LEXENT INC.
By /s/ KEVIN M. O'KANE
------------------------------
Name: Kevin M. O'Kane
Title: Chief Operating Officer
ALLEGRA CAPITAL PARTNERS III, L.P.
By: Allegra Partners III, L.P., its general partner
By /s/ RICHARD W. SMITH
------------------------------
Name: Richard W. Smith
Title: General Partner
ALLEGRA CAPITAL PARTNERS IV, L.P.
By: Allegra Partners IV, L.L.C., its general partner
By /s/ RICHARD W. SMITH
-------------------------------
Name: Richard W. Smith
Title: General Partner
ABBOTT CAPITAL 1330 INVESTORS I, LP
By: Abbott Capital 1330 GenPar, LLC., its general
partner
By /s/ THOMAS W. HALLAGAN
--------------------------------
Name: Thomas W. Hallagan
Title: General Partner
-5-
<PAGE> 30
/s/ HUGH J. O'KANE, JR.
-----------------------------------
Hugh O' Kane
/s/ KEVIN M. O'KANE
-----------------------------------
Kevin O' Kane
-6-
<PAGE> 1
Exhibit 4.4
AGREEMENT
AGREEMENT, dated as of July 20, 1998, by and among National Network
Technologies, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Company"), Hugh O'Kane Electric Co., Inc., a corporation
organized and existing under the laws of the State of New York (the
"Predecessor") and Denis J. O'Kane, a resident of the State of New York.
WHEREAS the Company and the Predecessor entered into that certain Merger
Agreement dated on or about July 22, 1998 (the "Merger Agreement"), pursuant to
the terms of which, the Predecessor shall be merged with and into the Company
(the "Merger"), with the Company surviving and continuing in existence under the
provisions of the General Corporation Law of the State of Delaware (the "DGCL");
and
WHEREAS the Company, Denis J. O'Kane, Hugh O'Kane, Jr. and Kevin O'Kane,
and Lawrence, Smith & Horey III, L.P. and Abbott Capital 1330 Investors I, L.P.
intend to enter into that certain Securities Purchase Agreement dated as of July
23, 1998 (the "Securities Purchase Agreement"), pursuant to the terms of which
Lawrence, Smith & Horey III, L.P. and Abbott Capital 1330 Investors I, L.P.
shall purchase 5,538,458 shares of Series A Convertible Preferred Stock, $.001
par value, of the Company for $11.5 million (the "Securities Purchase"); and
WHEREAS Denis J. O'Kane is a shareholder of the Predecessor;
NOW, THEREFORE, as a material inducement to Denis J. O'Kane to enter into
and perform his obligations under the Merger Agreement and the Securities
Purchase Agreement, each of the Company and the Predecessor hereby agree as
follows:
1. Denis J. O'Kane's interest in the Company following the consummation of
the Merger and the Securities Purchase shall be four and 17/100ths percent
(4.17%) of the capital stock of the Company, which stock shall be fully paid and
non-assessable. Denis J. O'Kane's holding of capital stock of the Company shall
be subject to dilution only (i) by the same percentage amount applicable to each
of the shareholders of the Company's capital stock, such that, for example, if
the amount of stock held by one of the shareholders is to be diluted by 2%, then
the amount of stock held by Denis J. O'Kane shall be diluted only to the extent
of 2%; (ii) to the extent of 417/1000ths percent (0.417%) (yielding a total
holding of 3.7530% of such capital stock) and only in the context of shares
being offered to key executives or employees for purposes of an employee stock
option plan; and (iii) as provided for by the Securities Purchase Agreement and
in accordance with the DGCL in the event of a properly approved future offering
or financing.
2. The Company shall provide Denis J. O'Kane with lifetime medical,
dental, life and health insurance benefits consistent with Denis J. O'Kane's
existing coverage.
<PAGE> 2
3. The Company agrees to make available to Denis J. O'Kane the use of a
Chevrolet Suburban for so long as Denis J. O'Kane remains a shareholder of the
Company. Such automobile shall be replaced at Denis J. O'Kane's option by the
Company every three years, with the first new Chevrolet Suburban to be provided
on or about August 1, 1998. In the event the Company is unable, through no fault
of its own, to procure a current model Chevrolet Suburban by December 31, 1998
or at the end of any such three-year period, the Company shall, at Denis J.
O'Kane's option, provide Denis J. O'Kane with a model of vehicle similar to the
Chevrolet Suburban in both cost and specifications.
4. As of the date hereof, the Predecessor holds the title to the following
automobiles: (a) 1996 Mercedes 420S; and (b) 1984 Mercedes Station Wagon.
Following the consummation of the Merger and the Securities Purchase, the
Company shall offer to Denis J. O'Kane the 1996 Mercedes 420S for $35,000 and
the 1984 Mercedes Station Wagon for $1.00. Denis J. O'Kane shall have the option
of purchasing one or both of these automobiles for such amounts, and this
provision shall in no way be interpreted as requiring Denis J. O'Kane to
purchase either or both of these automobiles.
5. The Company agrees to provide without charge to Denis J. O'Kane an
office for Denis J. O'Kane at his primary residence and secretarial services at
the Company for so long as Denis J. O'Kane shall remain a shareholder of the
Company.
6. The Company agrees to provide Denis J. O'Kane with the following
reports:
(a) As soon as practicable after the end of each fiscal year, and in
any event within 120 days thereafter, consolidated and consolidating balance
sheets of the Company and all direct or indirect subsidiaries of the Company, as
of the end of such fiscal year, and consolidated and consolidating statements of
income and consolidated and consolidating statements of changes in cash flow of
the Company and its subsidiaries for such fiscal year, prepared in accordance
with Generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year and the budgeted
figures for the current fiscal year, all in reasonable detail and audited,
together with a certificate of the Company executed by the chief executive
officer or principal financial or accounting officer of the Company certifying
that all covenants to be complied with by the Company, as provided in the
Securities Purchase Agreement have been complied with (or setting forth in
reasonable detail any covenants that have not been so complied with).
(b) As soon as practicable after the end of the first, second, third
and fourth quarterly accounting periods in each fiscal year of the Company and
in any event within 45 days thereafter, consolidated and consolidating balance
sheets of the Company and all direct and indirect subsidiaries of the Company,
as of the end of each such quarterly period, and consolidated and consolidating
statements of income and consolidated and consolidating statements of change in
cash flow of the Company and its subsidiaries for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles
2
<PAGE> 3
(other than for accompanying notes), subject to changes resulting from normal
year-end audit adjustments, and setting forth in each case in comparative form
the figures for the same periods of the previous year and the budgeted figures
for the current periods, all in reasonable detail and signed by the principal
financial or accounting officer of the Company, together with a certificate of
the Company executed by the chief executive officer or principal financial or
accounting officer of the Company certifying that all covenants to be complied
with by the Company under the Securities Purchase Agreement have been complied
with (or setting forth in reasonable detail any covenants that have not been so
complied with).
7. The Company agrees to pay all legal fees and other expenses incurred by
Denis J. O'Kane in connection with the Merger, the Securities Purchase, and such
other transactions as relate to the Merger and the Securities Purchase. Provided
the Merger and the Securities Purchase close on or before July 31, 1998, the
maximum of such reimbursement under this provision shall not exceed $40,000.
8. The Company hereby indemnifies Denis J. O'Kane and shall save and hold
him harmless against and pay on behalf of or reimburse him as and when incurred
for any loss, liability, legal fees, interest, penalty, demand, claim, action,
cause of action, cost, damage, deficiency, tax, fine or expense, arising out of
or related to any claims made by or on behalf of any person or entity, which
Denis J. O'Kane may suffer, sustain or become subject to, as a result of, or in
connection with, relating or incidental to the Company or the Predecessor.
9. Denis J. O'Kane (i) acknowledges that he has consulted with, and been
advised by, independent counsel with respect to this Agreement and the
transactions contemplated by the Merger Agreement, and the Securities Purchase
Agreement, and that he and his counsel have been provided copies of these and
related agreements; and (ii) acknowledges that he has approved the proposed
transaction contemplated by the Merger Agreement and the Securities Purchase
Agreement, and releases any claims and causes of action with respect to the
Merger and the Securities Purchase Agreement as against the Company, the
Predecessor, Hugh O'Kane, Jr. and Kevin O'Kane; provided, however, that
notwithstanding anything contained herein, Denis J. O'Kane does not release any
claim or cause of action for breach of (a) this Agreement, (b) the Merger
Agreement, (c) the Securities Purchase Agreement, (d) that certain Stockholders'
Agreement by and among the Company, Denis J. O'Kane, Hugh O'Kane, Jr. and Kevin
O'Kane, and Lawrence, Smith & Horey III, L.P. and Abbott Capital 1330 Investors
I, LP., dated as of July 23, 1998, (d) that certain Promissory Note dated July
16, 1998, and executed and delivered by the Predecessor to Denis J. O'Kane, (e)
that certain Promissory Note dated January 1, 1997, and executed and delivered
by the Predecessor to Denis J. O'Kane, or (f) that certain Amended and Restated
Promissory Note dated July 23, 1998, and executed and delivered by the Company
to Denis J. O'Kane.
10. This Agreement shall not confer any rights or remedies upon any
individual or legal entity other than the parties and their respective
successors and permitted assigns, personal representatives, heirs and estates,
as the case may be.
3
<PAGE> 4
11. This Agreement constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements or representations by or among
the parties, written or oral, that may have related in any way to the subject
matter of this Agreement.
12. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs, estate and permitted assigns. No
party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other parties.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
14. This Agreement will be governed by and construed in accordance with
the domestic laws of the State of New York, without giving effect to any choice
of law or conflicting provision or rule that would cause the laws of any
jurisdiction other than the State of New York to be applied. In furtherance of
the foregoing, the internal law of the State of New York will control the
interpretation and construction of this Agreement, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply. The parties hereby irrevocably
submit to the jurisdiction of any New York State or Federal court sitting in the
State, City and County of New York in any action or proceeding arising out of or
relating to this Agreement, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a New York State or Federal court.
15. No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties. No waiver by any
party of any default, misrepresentation, or breach of covenant hereunder,
whether or not intentional, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of covenant hereunder or affect in any way
any rights arising by virtue of any prior or subsequent such occurrence.
16. The parties shall each have and retain all other rights and remedies
existing in their favor at law or equity, including, without limitation, any
actions for specific performance and/or injunctive or other equitable relief to
enforce or prevent any violations of the provisions of this Agreement.
17. It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so
4
<PAGE> 5
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
* * * * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Company:
NATIONAL NETWORK TECHNOLOGIES, INC.
By: /s/ HUGH J. O'KANE, JR.
---------------------------------
Name: Hugh O'Kane, Jr.
Title: President
Predecessor:
HUGH O'KANE ELECTRIC CO., INC.
By: /s/ HUGH J. O'KANE, JR.
---------------------------------
Name: Hugh O'Kane, Jr.
Title: President
By: /s/ DENIS J. O'KANE
---------------------------------
Name: Denis J. O'Kane
Title: President
5
<PAGE> 1
Exhibit 4.5
VOTING AGREEMENT, dated as of February 14, 2000, by and among
Lexent Inc. (the "Company"), Hugh J. O'Kane, Jr. ("Hugh O'Kane"), and Kevin M.
O'Kane ("Kevin O'Kane" and together with Hugh O'Kane, the "Stockholders").
WHEREAS, Hugh O'Kane and Kevin O'Kane are stockholders of the
Company and wish to provide for the continuity and stability of the policy and
management of the Company in the event that either dies; and
WHEREAS, Hugh O'Kane is about to establish the Hugh J. O'Kane,
Jr. 2000 Grantor Retained Annuity Trust (the "GRAT Trust") and the Hugh J.
O'Kane, Jr. 2000 Remainder Trust (the "Remainder Trust" and together with the
GRAT Trust, the "Trusts"), and he is initially going to transfer 1,400,000
shares of Common Stock, $.001 par value, of the Company ("Common Stock"), to the
GRAT Trust, which shares he wishes to be and remain subject to the provisions of
this Voting Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and other good and valuable consideration, the
parties hereto agree as follows:
SECTION 1. Voting Agreement; Proxies.
(a) Hugh O'Kane agrees that in the event of his death, Kevin
O'Kane shall have, for a period of three (3) years from such date (the "HOK
Voting Period"), the unilateral right to vote all shares of capital stock (and
other voting interests) of the Company (and any other shares of capital stock or
other equity interests of any successor entity or as may result from any
reorganization, reclassification, merger, or similar event, as the case may be
(such shares and interests are collectively referred to herein as the "HOK
Voting Shares")) owned of record or beneficially by him at his death, and,
accordingly, the undersigned Hugh O'Kane hereby irrevocably appoints Kevin
O'Kane as his lawful proxy agent to vote any or all of the aforementioned HOK
Voting Shares during the HOK Voting Period at any and all general or special
meetings of stockholders, whether in person, by proxy or by written consent.
Hugh O'Kane expressly intends that this Agreement shall be
binding upon his heirs, beneficiaries, legatees, executors, trustees and legal
guardians. Hugh O'Kane acknowledges that the Common Stock being transferred by
him to the GRAT Trust (and thereafter to the Remainder Trust) is and shall
remain subject to this Agreement.
(b) Kevin O'Kane agrees that in the event of his death, Hugh
O'Kane shall have, for a period of three (3) years from such date (the "KOK
Voting Period"), the unilateral right to vote all shares of capital stock (and
other voting interests) of the Company (and any other shares of capital stock or
other equity interests of any successor entity or as may result from any
reorganization, reclassification, merger, or similar event, as the case may be
(such shares and interests are collectively referred to herein as the "KOK
Voting Shares," and together with the HOK Voting Shares, as the "Voting
Shares")) owned of record or beneficially by him at his
<PAGE> 2
death, and, accordingly, the undersigned Kevin O'Kane hereby irrevocably
appoints Hugh O'Kane as his lawful proxy agent to vote any or all of the
aforementioned KOK Voting Shares during the KOK Voting Period at any and all
general or special meetings of stockholders, whether in person, by proxy or by
written consent. Kevin O'Kane expressly intends that this Agreement shall be
binding upon his heirs, beneficiaries, legatees, executors, trustees and legal
guardians.
SECTION 2. Restriction on Transfer. No Stockholder shall
transfer any Voting Shares during the term of this Agreement unless, in each
case, either (i) the recipient of such Voting Shares shall agree in writing to
be bound by and comply with all applicable provisions of this Agreement as fully
as required of the transferor and be deemed to be a Stockholder hereunder, or
(ii) the transfer is pursuant to a registered public offering under the
Securities Act of 1933, as amended (the "Act") or pursuant to Rule 144 under the
Act.
SECTION 3. Legend on Stock Certificates. Each certificate
representing Voting Shares shall conspicuously bear the following legend until
such time as the shares represented thereby are no longer subject to the
provisions hereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN AGREEMENT, DATED FEBRUARY 14, 2000,
AMONG THE COMPANY, HUGH J. O'KANE, JR., KEVIN M. O'KANE.
COPIES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE COMPANY."
The Company covenants that it shall file a copy of this
Agreement in its stock books and shall keep a copy thereof at its corporate
headquarters.
SECTION 4. Duration of Agreement. This Agreement shall
terminate upon the earlier to occur of either the (i) third anniversary of the
death of the first to die of Hugh O'Kane or Kevin O'Kane or (ii) the first date
upon which both individuals are deceased.
SECTION 5. Representations and Warranties. Each Stockholder,
severally and not jointly, represents and warrants to the Company and the other
Stockholders as follows:
(a) The execution, delivery and performance of this Agreement
by such Stockholder will not violate any provision of law, any order of any
court or other agency of government, or any provision of any indenture,
agreement or other instrument to which such Stockholder or any of its or his
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of such Stockholder.
(b) This Agreement has been duly executed and delivered by
such Stockholder
<PAGE> 3
and, when executed by the other parties hereto, constitutes the legal, valid and
binding obligation of such Stockholder, enforceable in accordance with its
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws and to limitations on the
availability of equitable remedies.
(c) The shares of Common Stock listed in Annex I opposite the
name of such Stockholder constitute all the shares of the capital stock of the
Company owned by such Stock holder on the date hereof.
SECTION 6. Headings. Headings of articles, sections and
paragraphs of this Agreement are inserted for convenience of reference only and
shall not affect the interpretation or be deemed to constitute a part hereof.
SECTION 7. Severability. In the event that any one or more of
the provisions contained in this Agreement or in any other instrument referred
to herein shall, for any reason, be held to be invalid, illegal or
unenforceable, such illegality, invalidity or unenforceability shall not affect
any other provisions of this Agreement.
SECTION 8. Benefits of Agreement. Nothing expressed by or
mentioned in this Agreement is intended or shall be construed to give any person
other than the parties hereto and their respective successors and permitted
assigns any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
permitted assigns.
SECTION 9. Notices. Any notice or other communications
required or permitted hereunder shall be deemed to be sufficient and received if
contained in a written instrument delivered in person or by courier or duly sent
by first class certified mail, postage prepaid, or by telecopy addressed to such
party at the address or telecopy number set forth below:
(1) if to the Company, to it at:
Lexent Inc.
3 New York Plaza
New York, NY 10004
Attention: Chairman
Telecopy: (212) 981-2493
with a copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
<PAGE> 4
Attention: Joshua A. Leuchtenburg, Esq.
Telecopy: (212) 841-5725
(2) if to any Stockholder, to it at its address appearing on
Annex I hereto;
or, in any case, at such other address or telecopy number as shall have been
furnished in writing by such party to the other parties hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal or courier delivery, on the date of
such delivery, (b) in the case of mailing, on the fifth business day following
the date of such mailing and (c) in the case of telecopy, when received.
SECTION 10. Modification. Except as otherwise provided herein,
neither this Agreement nor any provision hereof may be modified, changed,
discharged or terminated except by an instrument in writing signed by the
parties hereto.
SECTION 11. Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one agreement.
SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE.
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as a sealed instrument, all as of the day and year first above
written.
LEXENT INC.
By /s/ HUGH O'KANE, JR.
----------------------------------
Name: Hugh J. O'Kane, Jr.
Title: Chairman
/s/ HUGH O'KANE, JR.
----------------------------------
Hugh J. O'Kane, Jr.
/s/ KEVIN M. O'KANE
----------------------------------
Kevin M. O'Kane
ACKNOWLEDGED AND CONSENTED TO
AS OF FEBRUARY 14, 2000
By /s/ PATRICIA O'KANE
-------------------------------
Name of Spouse: Patricia O'Kane
By /s/ MARGARET O'KANE
-------------------------------
Name of Spouse: Margaret O'Kane
HUGH J. O'KANE, JR. 2000 GRANTOR RETAINED ANNUITY TRUST
By /s/ KEVIN M. O'KANE
--------------------------------
Name of Trustee: Kevin M. O'Kane
By /s/ PATRICIA O'KANE
--------------------------------
Name of Trustee: Patricia O'Kane
HUGH J. O'KANE, JR. 2000 REMAINDER TRUST
By /s/ KEVIN M. O'KANE
--------------------------------
Name of Trustee: Kevin M. O'Kane
By /s/ PATRICIA O'KANE
--------------------------------
Name of Trustee: Patricia O'Kane
<PAGE> 1
Exhibit 10.2
LEXENT INC.
Incentive Stock Option Agreement
, 2000
Employee/Optionee:
Number of shares of
Common Stock subject
to this Agreement: SHARES
Pursuant to the Lexent Inc. and its Subsidiaries Amended and
Restated Stock Option and Restricted Stock Purchase Plan (the "Plan"), the Board
of Directors of Lexent Inc. (the "Company") has granted to you on this date an
option (the "Option") to purchase in the aggregate, on the terms and subject to
the conditions set forth herein, shares of the Company's Common Stock,
$.001 par value ("Common Stock"). Such shares (as the same may be adjusted as
described in Section 11 below) are herein referred to as the "Option Shares".
The Option shall constitute and be treated at all times by you and the Company
as an "incentive stock option" as defined under Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). The terms and conditions of the
Option are set out below.
1. Date of Grant. The Option is granted to you on , 2000
(the "Grant Date").
2. Termination of Option. Your right to exercise the Option (and to
purchase the Option Shares) shall expire and terminate in all events on the
earlier of (i) ten years from the Grant Date or (ii) the date provided in
Section 8 below in the event you cease to be employed by the Company or any
"Subsidiary" or "Parent" thereof ("Subsidiary" and "Parent" are defined herein
as defined in the Plan).
3. Option Price. The purchase price to be paid upon the exercise of
the Option is $ per share, the fair market value of a share of
Common Stock (as determined by the Board of Directors of the Company) on the
Grant Date (subject to adjustment as provided in Section 11 hereof).
<PAGE> 2
4. Vesting Provisions. The Option shall be exercisable as follows:
25% shall be exercisable 12 months after the Grant Date, and the balance shall
be exercisable on an equal monthly basis at the end of each month thereafter for
the following 36 months (in each case rounded to the nearest whole share).
5. Additional Provisions Relating to Exercise. (a) Once you become
entitled to exercise the Option (and purchase Option Shares) as provided in
Section 4 hereof, such right will continue until the date on which such Option
expires and terminates pursuant to Section 2 hereof, unless otherwise stipulated
herein. Notwithstanding anything contained herein to the contrary, no new rights
to exercise the Option with respect to any Option Shares shall be acquired under
Section 4 hereof after the date on which you cease to be employed on a full-time
basis by the Company or any Subsidiary or Parent thereof.
(b) The Board of Directors of the Company, in its sole discretion,
may at any time accelerate the time set forth in Section 4 at which the Option
may be exercised by you with respect to any Option Shares.
6. Exercise of Option. To exercise the Option, you must deliver a
completed copy of the attached Option Exercise Form to the address indicated on
the Form, specifying the number of Option Shares being purchased as a result of
such exercise, together with payment of the full option price for the Option
Shares being purchased. Payment of the option price must be made in cash or by
check or such other consideration acceptable to the Board of Directors of the
Company in its sole discretion.
7. Transferability of Option. You may not transfer the Option (other
than by will or the laws of descent and distribution). The Option may be
exercised during your lifetime only by you.
8. Termination of Employment. (a) In the event that (i) your
employment by the Company or any Subsidiary or Parent thereof is terminated by
such entity for cause or (ii) you terminate your employment by such entity for
any reason whatsoever other than as a result of your death or "disability"
(within the meaning of Section 22(e)(3) of the Code), then the Option may only
be exercised within 15 days after the date on which you ceased to be so
employed, and only to the extent that you could have otherwise exercised the
Option as of the date on which you ceased to be so employed.
(b) In the event that you cease to be employed on a full-time basis
by the Company or any Subsidiary or Parent thereof for any reason other than (x)
a termination specified in Section 8(a) above or (y) by reason of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code), then the
Option may only be exercised within 30 days after the date on which you ceased
to be so employed, and only to the extent that you could have otherwise
exercised the Option as of the date on which you ceased to be so employed.
2
<PAGE> 3
(c) In the event that you cease to be employed on a full-time basis
by the Company or any Subsidiary or Parent thereof by reason of a "disability"
(within the meaning of Section 22(e)(3) of the Code), then the Option may only
be exercised within 180 days after the date you cease to be so employed, and
only to the same extent that you were entitled to exercise the Option on the
date you ceased to be so employed by reason of such disability and had not
previously done so.
(d) In the event that you die while employed by the Company or any
Subsidiary or Parent thereof (or within a period of 15 days after ceasing to be
employed by the Company or any Subsidiary or Parent thereof for any reason
described in Section 8(a) or 8(b) above, or within a period of 180 days after
ceasing to be so employed for any reason described in Section 8(c) above), then
the Option may only be exercised within 180 days after your death. In such
event, the Option may be exercised during such 180 day period by the executor or
administrator of your estate or by any person who shall have acquired the Option
through bequest or inheritance, but only to the same extent that you were
entitled to exercise the Option immediately prior to the time of your death and
you had not previously done so.
(e) Notwithstanding any provision contained in this Section 8 to the
contrary, in no event may the Option be exercised to any extent by anyone after
the tenth anniversary of the Grant Date.
9. Representations. (a) You represent and warrant to the Company
that, upon exercise of the Option, you will be acquiring the Option Shares
attributable to such Option for your own account for the purpose of investment
and not with a view to or for sale in connection with any distribution thereof,
and you understand that (i) neither the Option nor any Option Shares have been
registered with the Securities and Exchange Commission by reason of their
issuance in a transaction exempt from the registration requirements and (ii) any
Option Shares must be held indefinitely by you unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration. The stock certificates for any Option Shares issued to you will
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT
ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that any "disqualifying disposition" of any Option Shares may result
in the Company being required to withhold Federal, state or local taxes
(including social security and
3
<PAGE> 4
medicare taxes) in respect of any compensation income realized by you as a
result of the exercise of the Option, which compensation income shall generally
equal the excess of the fair market value of any Option Shares received upon
exercise of the Option at the time of exercise over the exercise price of the
Option. To the extent that the Company is required to withhold any such taxes as
a result of the exercise of the Option and the "disqualifying disposition" of
any Option Shares, you hereby agree that the Company may deduct from any
payments of any kind otherwise due to you an amount equal to the total Federal,
state and local taxes required to be so withheld, or if such payments are
inadequate to satisfy such Federal, state and local taxes, or if no such
payments are due or to become due to you, then you agree to provide the Company
with cash funds or make other arrangements satisfactory to the Company regarding
such payment. It is understood that all matters with respect to the total amount
of taxes to be withheld in respect of any such compensation income shall be
determined by the Board of Directors in its sole discretion.
10. Notice of Sale. You agree to give the Company prompt notice of
any sale or other disposition of any Option Shares that occurs (i) within two
years from the Grant Date or (ii) within one year after the transfer of such
Option Shares to you upon the exercise of the Option.
11. Adjustments; Reorganization, Reclassification, Consolidation,
Merger or Sale. (a) In the event that, after the date hereof, the outstanding
shares of Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation in each such case through
reorganization, merger or consolidation, recapitalization, reclassification,
stock split, split-up, combination or exchange of shares or declaration of any
dividends payable in Common Stock, the Board of Directors of the Company shall,
in good faith, appropriately adjust the number of shares of Common Stock (and
the option price per share) subject to the unexercised portion of the Option (to
the nearest possible full share), and such adjustment shall be effective and
binding for all purposes of this Agreement and the Plan, subject to the
limitations of Section 424 of the Code.
(b) If any capital reorganization or reclassification of the capital
stock of the Company or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all its assets to another
corporation, shall be effected after the date hereof in such a way that holders
of Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then you shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified in
the Option and in lieu of the shares of Common Stock of the Company immediately
theretofore receivable upon the exercise of the Option, such shares of stock,
securities or assets (including cash) as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore so receivable had
such reorganization, reclassification, consolidation, merger or sale not taken
place.
(c) Notwithstanding Section 4 hereof, following a "Change of
Control" (as defined below), you shall become entitled to immediately exercise
the Option with respect to
4
<PAGE> 5
50% of the previously unexercisable Option Shares, and the balance shall become
exercisable according to the original schedule set forth in Section 4 above, in
each case until the Option expires and terminates pursuant to Section 2 hereof.
For purposes of the foregoing, "Change of Control" shall mean any capital
reorganization, consolidation, merger or sale of assets as a result of which or
in connection with which a person, corporation or other entity other than Kevin
and Hugh O'Kane acquires (x) ownership of more than 50% of the equity securities
of the Company or (y) all or substantially all of the assets and properties of
the Company as an entirety.
12. Continuation of Employment. Neither the Plan nor the Option
shall confer upon you any right to continue in the employ of the Company or any
Subsidiary or Parent thereof, or limit in any respect the right of the Company
or any Subsidiary or Parent thereof to terminate your employment or other
relationship with the Company or any Subsidiary or Parent thereof, as the case
may be, at any time.
13. Plan Documents. This Agreement is qualified in its entirety by
reference to the provisions of the Plan applicable to "incentive stock options"
as defined in Section 422(b) of the Code, which are hereby incorporated herein
by reference.
14. General Provisions. (a) This Option Agreement shall be governed
by and construed in accordance with the laws of the State of New York. If any
one or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
(b) This Agreement and the Plan contain the entire agreement between
the Company and you relating to the Option. Except as expressly provided in this
Agreement or the Plan with respect to certain actions permitted to be taken by
the Board of Directors of the Company or the Committee (as defined in the Plan)
with respect to this Agreement and the terms of the Option, this Agreement may
not be amended, modified, changed or waived other than by written instrument
signed by the parties hereto.
(c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5
<PAGE> 6
Please acknowledge receipt of this Agreement by signing the enclosed
copy of this Agreement in the space provided below and returning it promptly to
the Secretary of the Company.
LEXENT INC.
By __________________________________
Name:
Title:
Accepted and Agreed to
As of , 2000:
__________________________________
6
<PAGE> 7
LEXENT INC.
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
OPTION EXERCISE FORM
I,___________________ , a Participant under the Lexent Inc. and its
Subsidiaries Amended and Restated Stock Option and Restricted Stock Purchase
Plan (the "Plan"), do hereby exercise the right to purchase __________ shares of
Common Stock, $.001 par value, of Lexent Inc. pursuant to the incentive stock
option granted to me on _________, ____ under the Plan. Enclosed herewith is
$__________ , an amount equal to the total exercise price for the shares of
Common Stock being purchased pursuant to this Option Exercise Form.
Date:_____________________ __________________________
Signature
Send a completed copy of this Option Exercise Form to:
Lexent Inc.
3 New York Plaza
New York, New York 10004
Attention: Kevin O'Kane
Corporate Secretary
<PAGE> 1
EXHIBIT 10.3
================================================================================
CREDIT AGREEMENT
DATED AS OF JUNE 29, 1999
BY AND AMONG
NATIONAL NETWORK TECHNOLOGIES, INC.
AND
EUROPEAN AMERICAN BANK,
AS ADMINISTRATIVE AGENT
AND
THE LENDERS PARTY HERETO
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS.................................................................... 1
SECTION 1.01. Definitions............................................................. 1
SECTION 1.02. Terms Generally......................................................... 9
ARTICLE II
LOANS............................................................................................... 9
SECTION 2.01. Revolving Credit Commitment............................................. 9
SECTION 2.02. Note.................................................................... 11
ARTICLE III
PROVISIONS RELATING TO ALL EXTENSIONS OF CREDIT;
FEES AND PAYMENTS................................................................................... 11
SECTION 3.01. Interest Rate; Continuation and Conversion of Loans..................... 11
SECTION 3.02. Use of Proceeds......................................................... 12
SECTION 3.03. Optional Prepayments.................................................... 12
SECTION 3.04. Fees.................................................................... 12
SECTION 3.05. Increased Costs......................................................... 13
SECTION 3.06. Taxes................................................................... 14
SECTION 3.07. Pro Rata Treatment and Payments......................................... 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES...................................................................... 16
SECTION 4.01. Organization, Powers.................................................... 16
SECTION 4.02. Authorization of Borrowing, Enforceable Obligations..................... 16
SECTION 4.03. Financial Condition..................................................... 17
SECTION 4.04. Taxes................................................................... 17
SECTION 4.05. Title to Properties..................................................... 18
SECTION 4.06. Litigation.............................................................. 18
SECTION 4.07. Agreements.............................................................. 18
SECTION 4.08. Compliance with ERISA................................................... 18
SECTION 4.09. Federal Reserve Regulations; Use of Proceeds............................ 18
SECTION 4.10. Approvals............................................................... 19
SECTION 4.11. Subsidiaries............................................................ 19
SECTION 4.12. Hazardous Materials..................................................... 19
SECTION 4.13. Investment Company Act.................................................. 19
SECTION 4.14. No Default.............................................................. 19
SECTION 4.15. Material Contracts...................................................... 19
SECTION 4.16. Permits and Licenses.................................................... 20
</TABLE>
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<TABLE>
<S> <C>
SECTION 4.17. Compliance with Law..................................................... 20
SECTION 4.18. Y2K..................................................................... 20
SECTION 4.19. Disclosure.............................................................. 20
SECTION 4.20. Security Agreements..................................................... 21
SECTION 4.21. Pledge Agreement........................................................ 21
ARTICLE V
CONDITIONS OF LENDING............................................................................... 21
SECTION 5.01. Conditions to Loans..................................................... 21
SECTION 5.02. Conditions to all Extensions of Credit.................................. 24
ARTICLE VI
AFFIRMATIVE COVENANTS............................................................................... 24
SECTION 6.01. Existence, Properties, Insurance........................................ 24
SECTION 6.02. Payment of Indebtedness and Taxes....................................... 25
SECTION 6.03. Financial Statements, Reports, etc...................................... 25
SECTION 6.04. Books and Records; Access to Premises................................... 27
SECTION 6.05. Notice of Adverse Change................................................ 28
SECTION 6.06. Notice of Default....................................................... 28
SECTION 6.07. Notice of Litigation.................................................... 28
SECTION 6.08. Notice of Default in Other Agreements................................... 28
SECTION 6.09. Notice of ERISA Event................................................... 28
SECTION 6.10. Notice of Environmental Law Violations.................................. 29
SECTION 6.11. Notice Regarding Material Contracts..................................... 29
SECTION 6.12. Compliance with Applicable Laws......................................... 29
SECTION 6.13. Subsidiaries............................................................ 29
SECTION 6.14. Environmental Laws...................................................... 30
SECTION 6.15. Further Assurances...................................................... 30
ARTICLE VII
NEGATIVE COVENANTS.................................................................................. 30
SECTION 7.01. Liens................................................................... 30
SECTION 7.02. Indebtedness............................................................ 31
SECTION 7.03. Guaranties.............................................................. 32
SECTION 7.04. Sale of Assets.......................................................... 33
SECTION 7.05. Sales of Receivables.................................................... 33
SECTION 7.06. Loans and Investments................................................... 33
SECTION 7.07. Nature of Business...................................................... 33
SECTION 7.08. Sale and Leaseback...................................................... 33
SECTION 7.09. Federal Reserve Regulations............................................. 33
SECTION 7.10. Accounting Policies and Procedures...................................... 33
SECTION 7.11. Hazardous Materials..................................................... 34
SECTION 7.12. Limitations on Fundamental Changes...................................... 34
</TABLE>
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<TABLE>
<S> <C>
SECTION 7.13. Financial Covenants..................................................... 34
SECTION 7.14. Subordinated Debt....................................................... 35
SECTION 7.15. Dividends............................................................... 35
SECTION 7.16. Transactions with Affiliates............................................ 35
SECTION 7.17. Impairment of Security Interest......................................... 36
ARTICLE VIII
EVENTS OF DEFAULT................................................................................... 36
SECTION 8.01. Events of Default....................................................... 36
ARTICLE IX
THE ADMINISTRATIVE AGENT............................................................................ 38
SECTION 9.01. Appointment, Powers and Immunities...................................... 38
SECTION 9.02. Reliance by Administrative Agent........................................ 39
SECTION 9.03. Events of Default....................................................... 39
SECTION 9.04. Rights as a Lender...................................................... 40
SECTION 9.05. Indemnification......................................................... 40
SECTION 9.06. Non-Reliance on Administrative Agent and Other Lenders.................. 40
SECTION 9.07. Failure to Act.......................................................... 41
SECTION 9.08. Resignation of the Administrative Agent................................. 41
SECTION 9.09. Sharing of Collateral and Payments...................................... 41
ARTICLE X
MISCELLANEOUS....................................................................................... 42
SECTION 10.01. Notices................................................................. 42
SECTION 10.02. Effectiveness; Survival................................................. 43
SECTION 10.03. Expenses................................................................ 43
SECTION 10.04. Amendments and Waivers.................................................. 44
SECTION 10.05. Successors and Assigns; Participations.................................. 45
SECTION 10.06. No Waiver; Cumulative Remedies.......................................... 47
SECTION 10.07. APPLICABLE LAW.......................................................... 48
SECTION 10.08. SUBMISSION TO JURISDICTION.............................................. 48
SECTION 10.09. Severability............................................................ 48
SECTION 10.10 Right of Setoff......................................................... 49
SECTION 10.11. Headings................................................................ 49
SECTION 10.12. Construction............................................................ 49
SECTION 10.13. Counterparts............................................................ 50
</TABLE>
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SCHEDULES
Schedule I - Subsidiaries
Schedule II - Existing Liens
Schedule III - Existing Indebtedness
Schedule IV - Existing Guarantees
Schedule V - Material Contracts
EXHIBITS
Exhibit A - Form of Note
Exhibit B-1 - Form of Company Security Agreement
Exhibit B-2 - Form of Guarantor Security Agreement
Exhibit C - Form of Corporate Guaranty
Exhibit D - Form of Individual Guaranty
Exhibit E - Reserved
Exhibit F - Form of Opinion of Counsel
Exhibit G-1 - Form of Subordination Agreement (D.O'Kane)
Exhibit G-2 - Form of Subordination Agreement (H.O'Kane/K.O'Kane)
Exhibit H - Form of Pledge Agreement
Exhibit I - Form of Assignment an Acceptance Agreement
<PAGE> 6
CREDIT AGREEMENT dated as of June 29, 1999, by and among NATIONAL
NETWORK TECHNOLOGIES, INC., a Delaware corporation (the "Company"), STATE BANK
OF LONG ISLAND, a New York banking corporation ("SBLI"), EUROPEAN AMERICAN BANK,
a New York banking corporation ("EAB"); with SBLI, each a "Lender" and
collectively, the "Lenders") and EUROPEAN AMERICAN BANK, as Administrative Agent
for the Lenders (in such capacity the "Administrative Agent").
RECITALS
The Company has requested the Lenders to extend credit to the Company
from time to time and the Lenders are willing to extend such credit to the
Company, subject to the terms and conditions hereinafter set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINITIONS. As used herein, the following words and terms
shall have the following meanings:
"Affiliate" shall mean with respect to a specified Person, another
Person which, directly or indirectly, controls or is controlled by or is under
common control with such specified Person. For the purpose of this definition,
"control" of a Person shall mean the power, direct or indirect, to direct or
cause the direction of the management or policies of such Person whether through
the ownership of voting securities, by contract or otherwise; provided that, in
any event, any Person who owns directly or indirectly 10% or more of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 10% or more of the partnership or other
ownership interest of any Person (other than as a limited partner of such other
Person) will be deemed to control such corporation or other Person.
"Administrative Agent" shall mean EAB in its capacity as administrative
and collateral agent for the Lenders under this Agreement or its successor
Administrative Agent permitted pursuant to Section 9.08.
"Agreement" shall mean this Credit Agreement, dated as of June 29, 1999,
as it may hereafter be amended, restated, supplemented or otherwise modified
from time to time.
"Assignment and Acceptance Agreement" shall mean the Assignment and
Acceptance Agreement substantially in the form of Exhibit I attached hereto.
"Borrowing Date" shall mean, with respect to any Loan, the date on which
such Loan is disbursed to the Company.
<PAGE> 7
"Business Day" shall mean any day not a Saturday, Sunday or legal
holiday, on which banks in New York City are open for business
"Capital Expenditures" shall mean additions to property and equipment of
the Company and its consolidated Subsidiaries which, in conformity with
Generally Accepted Accounting Principles, are included as "additions to
property, plant or equipment" or similar items which would be reflected in the
consolidated statement of cash flow of the Company, including, without
limitation, property and equipment which are the subject of Capital Leases.
"Capital Lease" shall mean any lease the obligations of which are
required to be capitalized on the balance sheet of a Person in accordance with
Generally Accepted Accounting Principles.
"Chief Financial Officer" shall mean the Chief Financial Officer of the
Company.
"Closing Date" shall mean June 29, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment Proportion" shall mean, with respect to each Lender, the
proportion its Revolving Credit Commitment bears to the Total Revolving Credit
Commitment.
"Company" shall have the meaning set forth in the preamble hereto.
"Consolidated EBITDA" shall mean for the Company and its consolidated
Subsidiaries for any period, the Consolidated Net Income for such period, plus
the sum, without duplication, of (a) gross interest expense, (b) depreciation
and amortization expenses, (c) all income taxes to any government or
governmental instrumentality expensed on the Company's, and any Subsidiary's
books (whether paid or accrued), (d) the cumulative effect of changing
accounting treatment with respect to the completed contract method on jobs whose
duration are expected to be 90 days or less) and (e) any non-cash charges
attributable to options outstanding to purchase shares of the Company minus the
sum of (a) all extraordinary or unusual gains and (b) all non-cash income or
gain attributable to options outstanding to purchase shares of the Company, in
each case determined on a consolidated basis for the Company and its
consolidated Subsidiaries in accordance with Generally Accepted Accounting
Principles, applied on a consistent basis. All of the foregoing categories shall
be calculated over the four fiscal quarters next preceding the date of
calculation thereof.
"Consolidated Fixed Charge Ratio" shall mean, for any period, the ratio
of (a) the sum of (i) Consolidated EBITDA plus (ii) Consolidated Rent Expense
plus (iii) operating lease expense, less Capital Expenditures to (b) the sum of
(i) Consolidated Interest Expense plus (ii) the Current Portion of Long Term
Debt plus (iii) Consolidated Rent Expense and (iv) operating lease expense. All
the foregoing categories shall be calculated over the four fiscal quarters next
preceding the date of calculation thereof.
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<PAGE> 8
"Consolidated Interest Coverage Ratio" shall mean, for any period, the
ratio of (a) Consolidated EBITDA less consolidated Capital Expenditures to (b)
Consolidated Interest Expense. All the foregoing categories shall be calculated
over the four fiscal quarters next preceding the date of calculation thereof.
"Consolidated Interest Expense" shall mean the gross interest expense of
the Company and its consolidated Subsidiaries determined in accordance with
Generally Accepted Accounting Principles applied on a consistent basis that is
required to be or is paid in cash.
"Consolidated Leverage Ratio" shall mean, for any period, the ratio of
(a) total consolidated liabilities of the Company and its consolidated
Subsidiaries excluding Subordinated Debt to (b) the sum of (i) Consolidated
Tangible Net Worth plus (ii) Subordinated Debt, in each case, determined in
accordance with Generally Accepted Accounting Principles, applied on a
consistent basis.
"Consolidated Net Income" shall mean, for any period, the net income (or
net loss) of the Company and its consolidated Subsidiaries for such period
determined in accordance with Generally Accepted Accounting Principles applied
on a consistent basis.
"Consolidated Rent Expense" shall mean rent expense of the Company and
its consolidated Subsidiaries determined in accordance with Generally Accepted
Accounting Principles, less all rents reimbursable to the Company or any of its
consolidated Subsidiaries by their customers pursuant to a contractual
obligation.
"Consolidated Tangible Net Worth" shall mean (a) total consolidated
assets of the Company and its consolidated Subsidiaries, except that there shall
be excluded therefrom (i) all obligations due to the Company or Subsidiary from
any Affiliate, and (ii) all intangible assets including, without limitation,
organizational expenses, patents, trademarks, copyrights, goodwill, covenants
not to compete, research and development costs, training costs and all
unamortized debt discount and deferred charges less (b) total consolidated
liabilities of the Company and its consolidated Subsidiaries, in each case,
determined in accordance with Generally Accepted Accounting Principles, applied
on a consistent basis.
"Contingent Commitment" shall have the meaning specified in Section
2.01(f).
"Corporate Guarantors" shall mean, collectively, National Network
Technologies, LLC, a Delaware limited liability company, Hugh O'Kane Electric
Co. LLC, a Delaware limited liability company and each Person who, from time to
time, is required to execute a Corporate Guaranty in accordance with Section
6.13.
"Corporate Guaranty" shall mean the Corporate Guaranty in the form
attached hereto as Exhibit C to be executed and delivered by each Corporate
Guarantor on the Closing Date and, thereafter, by any Person who may be required
to execute the same pursuant to Section 6.13, as each
3
<PAGE> 9
of the same may hereafter be amended, restated, supplemented or otherwise
modified from time to time.
"Current Portion of Long Term Debt" means that portion of long term
indebtedness of the Company and its consolidated Subsidiaries which is required
to be paid in the immediately succeeding twelve month period, as determined in
accordance with Generally Accepted Accounting Principles consistently applied,
but excluding the Loans).
"Default" shall mean any condition or event which upon notice, lapse of
time or both would constitute an Event of Default.
"Dollar" and the symbol "$" shall mean lawful money of the United States
of America.
"Eligible Investments" shall mean (a) direct obligations of the United
States of America or any governmental agency thereof which are fully guaranteed
by the United States of America, provided that such obligations mature within
one year from the date of acquisition thereof; or (b) dollar denominated
certificates of time deposit maturing within one year issued by any bank
organized and existing under the laws of the United States or any state thereof
and having aggregate capital and surplus in excess of $1,000,000,000; or (c)
money market mutual funds having assets in excess of $2,500,000,000; or (d)
commercial paper rated not less than P-1 or A-1 or their equivalent by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group, respectively; or (e)
tax exempt securities of a U.S. issuer rated A or better by Standard and Poor's
Ratings Group or Moody's Investors Service, Inc.
"Environmental Law" shall mean any law, ordinance, rule, regulation, or
policy having the force of law of any Governmental Authority relating to
pollution or protection of the environment or to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections
9601, et seq.), the Hazardous Materials Transportation Act, as amended (49
U.S.C. Sections 1801, et seq.) the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Sections 6901, et seq.) and the rules and regulations
promulgated pursuant thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Company or any Affiliate of the Company would be
deemed to be a member of the same "controlled group" within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
"Event of Default" shall have the meaning set forth in Article VIII.
4
<PAGE> 10
"Executive Officer" shall mean any of the President, the Chief Executive
Officer, the Chief Financial Officer or the Secretary of the Company or any
Corporate Guarantor, as applicable, and their respective successors, if any,
designated by the board of directors thereof.
"Existing Indebtedness" shall mean the aggregate indebtedness of the
Company and Hugh O'Kane Electric Co. LLC to SBLI on the Closing Date as
evidenced by two (2) Notes, one in the original principal amount of $3,500,000,
and the other in the original principal amount of $1,000,000, each dated as of
February 22, 1999.
"Generally Accepted Accounting Principles" shall mean those generally
accepted accounting principles in the United States of America, as in effect
from time to time.
"Governmental Authority" shall mean any nation or government, any state,
province, city or municipal entity or other political subdivision thereof, and
any governmental, executive, legislative, judicial, administrative or regulatory
agency, department, authority, instrumentality, commission, board or similar
body, whether federal, state, provincial, territorial, local or foreign.
"Guaranties" shall mean, collectively, the Individual Guaranties and the
Corporate Guaranties.
"Guarantors" shall mean, collectively, the Individual Guarantors and the
Corporate Guarantors.
"Hazardous Materials" shall mean any explosives, radioactive materials,
or other materials, wastes, substances, or chemicals regulated as toxic
hazardous or as a pollutant, contaminant or waste under any applicable
Environmental Law.
"Indebtedness" shall mean, without duplication, as to any Person or
Persons (a) indebtedness for borrowed money; (b) indebtedness for the deferred
purchase price of property or services; (c) indebtedness evidenced by bonds,
debentures, term notes or other similar instruments; (d) obligations and
liabilities secured by a Lien upon property owned by such Person, whether or not
owing by such Person and even though such Person has not assumed or become
liable for the payment thereof; (e) obligations and liabilities directly or
indirectly guaranteed by such Person; (f) obligations or liabilities created or
arising under any conditional sales contract or other title retention agreement
with respect to property used and/or acquired by such Person; (g) obligations of
such Person as lessee under Capital Leases; (h) net liabilities of such Person
under foreign currency exchange agreements, as calculated on a basis
satisfactory to the Administrative Agent and in accordance with accepted
practice; and (i) all obligations, contingent or otherwise of such Person as an
account party or applicant in respect of letters of credit.
"Individual Guarantors" shall mean Mr. Hugh O'Kane, Jr. and Mr. Kevin
O'Kane.
5
<PAGE> 11
"Individual Guaranty" shall mean the Individual Guaranty in the form
attached as Exhibit D to be executed and delivered by the Individual Guarantor
on the Closing Date, as the same may hereafter be amended, restated,
supplemented or otherwise modified from time to time.
"Interest Payment Date" shall mean the last day of each month during the
term hereof.
"Lenders" shall have the meaning set forth in the preamble hereto.
"Lending Office" shall mean, for each Lender, the office specified under
such Lender's name on the signature pages hereof with respect to each Loan, or
such other office as such Lender may designate in writing from time to time to
the Company and the Administrative Agent with respect to such Loan.
"Lien" shall mean any lien (statutory or otherwise), security interest,
mortgage, deed of trust, pledge, charge, conditional sale, title retention
agreement, Capital Lease or other encumbrance or similar right of others, or any
agreement to give any of the foregoing.
"Loan Documents" shall mean, collectively, this Agreement, the Notes,
the Security Documents, the Guaranties, the Subordination Agreements and each
other agreement executed in connection with the transactions contemplated hereby
or thereby, as each of the same may hereafter be amended, restated, supplemented
or otherwise modified from time to time.
"Loans" shall mean the Revolving Credit Loans.
"Material Adverse Effect" shall mean a material adverse effect upon (a)
the business, operations, property, prospects or condition (financial or
otherwise) of the Company or any Guarantor, or (b) the ability of the Company or
any Guarantor to perform in any material respect any obligations under any Loan
Document to which it is a party.
"Material Contract" shall mean each contract, instrument or agreement
(a) to which the Company or any Corporate Guarantor is a party which is material
to the business, operations or condition (financial or otherwise), performance,
prospects, or properties of the Company or any Corporate Guarantor or (b) which
requires the payment during the term thereof in excess of $100,000.
"Notes" shall have the meaning set forth in Section 2.02.
"Obligations" shall mean all obligations, liabilities and indebtedness
of the Company to the Lenders and the Administrative Agent, whether now existing
or hereafter created, absolute or contingent, direct or indirect, due or not,
whether created directly or acquired by assignment or otherwise, arising under
or relating to this Agreement, the Notes or any other Loan Document including,
without limitation, all obligations, liabilities and indebtedness of the Company
with respect
6
<PAGE> 12
to the principal of and interest on the Loans, and all fees, costs, expenses and
indemnity obligations of the Company hereunder or under any other Loan Document.
"Participant" shall have the meaning set forth in Section 10.05(b).
"Payment Office" shall mean the Administrative Agent's office located at
335 Madison Avenue, New York, New York 10017, or such other office as the
Administrative Agent may designate from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Liens" shall mean the Liens specified in clauses (a) through
(i) of Section 7.01.
"Person" shall mean any natural person, corporation, limited liability
company, limited liability partnership, business trust, joint venture,
association, company, partnership or Governmental Authority.
"Pledge Agreement" shall mean the Pledge Agreement in the form attached
hereto as Exhibit H to be executed and delivered on the Closing Date by the
Company as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time.
"Plan" shall mean any multi-employer or single-employer plan defined in
Section 4001 of ERISA, which covers, or at any time during the five calendar
years preceding the date of this Agreement covered, employees of the Company,
any Corporate Guarantor or an ERISA Affiliate on account of such employees'
employment by the Company, any Corporate Guarantor or an ERISA Affiliate.
"Prime Rate" shall mean the rate per annum announced by the entity which
is the Administrative Agent from time to time as its prime rate in effect at its
principal office. Each change in the Prime Rate shall be effective on the date
such change is announced to become effective.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan as to which the 30 day notice requirement has not
been waived by the PBGC.
"Required Lenders" shall mean (a), if there are two or fewer Lenders,
all the Lenders, and (b), if there are three or more Lenders, Lenders owed at
least 66 2/3% of the sum of the aggregate unpaid principal amount of the Loans
or, if no Loans are outstanding, Lenders having at least 66 2/3% of the
Revolving Credit Commitment.
7
<PAGE> 13
"Revolving Credit Loan" and "Revolving Credit Loans" has the meaning
assigned to such terms in subsection 2.01.
"Revolving Credit Commitment" shall mean with respect to each Lender the
obligation of such Lender to make Revolving Credit Loans to the Company
initially in an aggregate amount not to exceed $5,000,000 with respect to SBLI
and $5,000,000 with respect to EAB; provided, however, in the event the
Contingent Commitment is in effect, EAB's Revolving Credit Commitment shall be
increased by $2,500,000.
"Revolving Credit Commitment Period" shall mean the period from and
including the date hereof to but not including the Revolving Credit Expiration
Date or such earlier date as the Revolving Credit Commitment shall terminate as
provided herein.
"Revolving Credit Commitment Termination Date" shall mean the third
anniversary of the date hereof.
"Security Agreements" shall mean, collectively, with respect to the
Company, the Security Agreement in the form attached hereto as Exhibit B-1, and,
with respect to each Corporate Guarantor, the Guarantor Security Agreement in
the form attached hereto as Exhibit B-2 to be executed and delivered on the
Closing Date by the Company and each Corporate Guarantor, and, thereafter, by
any Person who may be required to execute the same pursuant to Section 6.13, as
each of the same may hereafter be amended, restated, supplemented or otherwise
modified from time to time.
"Security Documents" shall mean the Security Agreements, the Pledge
Agreement and each other collateral security document delivered to the
Administrative Agent hereunder.
"Shareholders Agreement" shall mean collectively, the Shareholders
Agreement, dated as of July 23, 1998, among National Network Technologies, Inc.
and the Stockholders of the Corporation identified on Annex I thereto and the
Directed Share Agreement, dated as of July 23, 1998, by and among National
Network Technologies, Inc. and the Investors named on Schedule I thereto.
"Solvent" shall mean with respect to any Person as of the date of
determination thereof that (a) the amount of the "present fair saleable value"
of the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise," as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required on its debts as such debts become absolute
and matured, (c) such Person will not have as of such date, an unreasonably
small amount of capital with which to conduct its business, and (d) such Person
will be able to pay its debts as they mature.
8
<PAGE> 14
"Subordinated Debt" shall mean all debt which is subordinated in right
of payment to the prior final and indefeasible payment in full of the
obligations of the Company and/or of any Corporate Guarantor to the Lenders
hereunder and under any other Loan Document on terms satisfactory to and
approved in writing by the Required Lenders.
"Subordination Agreements" shall mean the Subordination Agreements in
the forms attached hereto as Exhibit G-1 and Exhibit G-2 to be executed and
delivered on the Closing Date by Mr. Hugh O'Kane, Jr., Mr. Kevin O'Kane and Mr.
Denis O'Kane as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time.
"Subsidiaries" shall mean with respect to any Person any corporation,
association or other business entity more than 50% of the voting stock or other
ownership interests (including, without limitation, membership interests in a
limited liability company) of which is at the time owned or controlled, directly
or indirectly, by such Person or one or more of its Subsidiaries or a
combination thereof.
"Taxes" shall have the meaning set forth in Section 3.06.
"Total Revolving Credit Commitments" shall mean, at any time, the
aggregate of the Revolving Commitments in effect at such time, which shall be
initially $10,000,000, subject to adjustment in the Contingent Commitment is in
effect.
"Unfunded Current Liability" of any Plan shall mean the amount, if any,
by which the present value of the accrued benefits under the Plan as of the
close of its most recent plan year exceeds the fair market value of the assets
allocable thereto, determined in accordance with Section 412 of the Code.
SECTION 1.02. TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, pronouns stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and the neuter. Except as otherwise
herein specifically provided, each accounting term used herein shall have the
meaning given to it under Generally Accepted Accounting Principles. The term
"including" shall not be limited or exclusive, unless specifically indicated to
the contrary. The word "will" shall be construed to have the same meaning in
effect as the word "shall". The words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole, including the
exhibits and schedules hereto, all of which are by this reference incorporated
into this Agreement.
ARTICLE II
LOANS
SECTION 2.01. REVOLVING CREDIT COMMITMENT. (a) Subject to the terms and
conditions, and relying upon the representations and warranties set forth
herein, each Lender severally but not jointly agrees to make loans (individually
a "Revolving Credit Loan" and, collectively, the
9
<PAGE> 15
"Revolving Credit Loans") to the Company from time to time during the Revolving
Credit Commitment Period up to but not exceeding at any one time outstanding the
amount of its Revolving Credit Commitment; provided, however, that no Revolving
Credit Loan shall be made if, after giving effect to such Revolving Credit Loan,
the aggregate outstanding principal amount of all Revolving Credit Loans at such
time would exceed the Revolving Credit Commitment in effect at such time. During
the Revolving Credit Commitment Period, the Company may from time to time
borrow, repay and reborrow hereunder on or after the date hereof and prior to
the Revolving Credit Commitment Termination Date, subject to the terms,
provisions and limitations set forth herein.
(b) The Company may borrow under the Revolving Credit Commitment
during the Revolving Credit Commitment Period on any Business Day; provided that
the Company shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 11:00 a.m. New York time
on the day of the requested borrowing) for the Revolving Credit Loan. Such
notice shall be irrevocable and shall specify (i) the amount of the proposed
borrowing, (ii) the proposed use of the loan proceeds, and (iii) the proposed
Borrowing Date. Upon receipt of such notice from the Company, the Administrative
Agent shall promptly notify each Lender thereof. Each borrowing pursuant to the
Revolving Credit Commitment shall be in an aggregate principal amount of (i)
$200,000 or whole multiples of $100,000 in excess thereof (or, if less, an
amount equal to the Revolving Credit Commitment in effect at such time).
(c) The Company shall have the right, upon not less than three
Business Days' prior written notice to the Administrative Agent, to terminate
the Revolving Credit Commitment or from time to time to permanently reduce the
amount of the Revolving Credit Commitment; provided, however, that no such
termination or reduction shall be permitted if, after giving effect thereto and
to any prepayments of the Revolving Credit Loans made on the effective date
thereof, the aggregate outstanding principal amount of all Revolving Credit
Loans at such time would exceed the Revolving Credit Commitment as then reduced.
The Administrative Agent shall promptly notify each Lender of each notice from
the Company to terminate or permanently reduce the amount of the Revolving
Credit Commitment pursuant to this Section 2.01. Any such reduction shall be in
the amount of $1,000,000 or whole multiples of $100,000 in excess thereof, and
shall reduce permanently the amount of the Revolving Credit Commitment then in
effect.
(d) [RESERVED]
(e) The several agreement of the Lenders to make Revolving Credit
Loans pursuant to Section 2.01 shall automatically terminate on the Revolving
Credit Commitment Termination Date. Upon such termination, the Company shall
immediately repay in full the principal amount of the Revolving Credit Loans
then outstanding, together with all accrued interest thereon and all other
amounts due and payable hereunder.
(f) At the request of the Company, EAB, in its sole and absolute
discretion, upon five (5) Business Days' written notice to the Lenders may elect
to increase the Revolving Credit Commitment by $2,500,000 (such increased
portion the "Contingent Commitment"). In the event the Revolving
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Credit Commitment is so increased then notwithstanding anything to the contrary
in this Agreement all Revolving Credit Loans in excess of the Revolving Credit
Commitment as in effect prior to the Contingent Commitment shall be funded by
EAB as a Lender and no other Lender shall have any other obligation to fund such
Revolving Credit Loans. The provisions of this Section 2.01(f) shall be binding
upon any assignee of EAB pursuant to Section 10.05(c) to the extent of such
assignee's pro rata portion of EAB's Revolving Credit Commitment immediately
prior to such assignment.
SECTION 2.02. NOTE. The Revolving Credit Loans made by each Lender shall
be evidenced by a promissory note of the Company (individually a "Note" and,
collectively, the "Notes"), substantially in the form attached hereto as Exhibit
A, each appropriately completed, duly executed and delivered on behalf of the
Company and payable to the order of such Lender in a principal amount equal to
the Revolving Credit Commitment of such Lender. Each Note shall (a) be dated the
Closing Date, (b) be stated to mature on the Revolving Credit Commitment
Termination Date, and (c) bear interest from the date thereof until paid in full
on the unpaid principal amount thereof from time to time outstanding as provided
in Section 3.01. Each Lender is authorized to record the date and amount of each
Revolving Credit Loan and the date and amount of each payment or prepayment of
principal of each Revolving Credit Loan in such Lender's records or on the grid
schedule annexed to the Note; provided, however, that the failure of a Lender to
set forth each such Revolving Credit Loan, payment and other information shall
not in any manner affect the obligation of the Company to repay each Revolving
Credit Loan made by such Lender in accordance with the terms of its Note and
this Agreement. The Note, the grid schedule and the books and records of each
Lender shall constitute presumptive evidence of the information so recorded
absent clear and obvious error.
ARTICLE III
PROVISIONS RELATING TO ALL EXTENSIONS OF CREDIT;
FEES AND PAYMENTS
SECTION 3.01. INTEREST RATE; CONTINUATION AND CONVERSION OF LOANS.
(a) Each Loan shall bear interest for the period from the
date thereof on the unpaid principal amount thereof at a fluctuating rate per
annum equal to the Prime Rate plus one-quarter of one percent (.25%).
(b) Upon the occurrence and during the continuance of an
Event of Default arising pursuant to Section 8.01(a), the outstanding principal
amount of the Loans (excluding any defaulted payment of principal accruing
interest in accordance with clause (e) below), shall, at the option of the
Required Lenders, bear interest payable on demand at a rate of interest 2% per
annum in excess of the interest rate otherwise then in effect.
(c) If the Company shall default in the payment of the
principal of or interest on any portion of any Loan or any other amount becoming
due hereunder, whether with respect to interest, fees, expenses or otherwise,
the Company shall pay interest on such defaulted amount accruing from the date
of such default (without reference to any period of grace) up to and including
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the date of actual payment (after as well as before judgment) at a rate of 2%
per annum in excess of the Prime Rate.
(d) Anything in this Agreement or in any Note to the
contrary notwithstanding, the obligation of the Company to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be paid to a Lender to the extent that the charging or receipt
thereof would not be permissible under the law or laws applicable to such Lender
limiting the rates of interest that may be charged or collected by such Lender.
In each such event payments of interest required to be paid to such Lender shall
be calculated at the highest rate permitted by applicable law until such time as
the rates of interest required hereunder may lawfully be charged and collected
by such Lender. If the provisions of this Agreement or any Note would at any
time otherwise require payment by the Company to any Lender of any amount of
interest in excess of the maximum amount then permitted by applicable law, the
interest payments to such Lender shall be reduced to the extent necessary so
that such Lender shall not receive interest in excess of such maximum amount.
(e) Interest on each Loan shall be payable in arrears on
each Interest Payment Date and shall be calculated on the basis year of 360 days
and shall be payable for the actual days elapsed. Any rate of interest on the
Loans or other Obligations which is computed on the basis of the Prime Rate
shall change when and as the Prime Rate changes in accordance with the
definition thereof. Each determination by the Administrative Agent of an
interest rate or fee hereunder shall, absent clear and obvious error, be
conclusive and binding for all purposes.
SECTION 3.02. USE OF PROCEEDS. The proceeds of the Loans shall be used
solely to refinance the Existing Indebtedness and for general corporate
purposes, including, without limitation, financing working capital, of the
Company and the Corporate Guarantors in the ordinary course of business.
SECTION 3.03. OPTIONAL PREPAYMENTS. The Company may at any time and from
time to time, prepay the then outstanding Loans, in whole or in part, without
premium or penalty, upon written notice to the Administrative Agent (or
telephonic notice promptly confirmed in writing) not later than 11:00 a.m. New
York, New York time, on the date of prepayment. Each notice shall be irrevocable
and shall specify the date and amount of prepayment. Upon receipt of such
notice, the Administrative Agent shall promptly notify each Lender thereof. If
such notice is given, the Company shall make such prepayment, and the amount
specified in such notice shall be due and payable, on the date specified therein
together with accrued interest to such date on the amount repaid. Each
prepayment shall be in the minimum principal amount of $100,000 or whole
multiples of $100,000 in excess thereof.
SECTION 3.04. FEES. (a) On the Closing Date, the Company agrees to pay
to the Administrative Agent for the benefit of the Lenders, a facility fee of
$37,500, $15,000 of which the Lenders acknowledge that they received prior to
the date hereof and $22,500 of which shall be payable on the Closing Date, such
fee to be distributed to the Lenders based upon their respective Commitment
Proportion.
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(b) The Company shall pay to each Lender, pro rata based on
each Lender's Commitment Proportion of the Revolving Credit Commitment, a
commitment fee on the average daily amount of the Revolving Credit Commitment
less the aggregate principal amount of the Revolving Credit Loans outstanding
from the date of this Agreement until the Revolving Credit Commitment
Termination Date at the rate of 1/8 of 1% per annum, based on a year of 360
days, payable in arrears on the last business day of each calendar quarter,
commencing June 30, 1999, and on the Revolving Credit Commitment Termination
Date and on any day the Revolving Credit Commitment is permanently reduced in
whole or in part.
SECTION 3.05. INCREASED COSTS. (a) In the event that any introduction of
or change in, on or after the date hereof, any applicable law, regulation,
treaty, order, directive or in the interpretation or application thereof
(including, without limitation, any request, guideline or policy, whether or not
having the force of law, of or from any central bank or other governmental
authority, agency or instrumentality and including, without limitation,
Regulation D), by any authority charged with the administration or
interpretation thereof shall occur, which:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Loan, or change
the basis of taxation of payments to such Lender of principal, interest,
fees or any other amount payable hereunder (other than any tax that is
measured with respect to the overall net income of such Lender or
Lending Office of such Lender and that is imposed by the United States
of America, or any political subdivision or taxing authority thereof or
therein, or by any jurisdiction in which such Lender's Lending Office is
located, or by any jurisdiction in which such Lender is organized, has
its principal office or is managed and controlled); or
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement (whether or not
having the force of law) against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office of
any Lender; or
(iii) shall impose on any Lender any other condition, or
change therein;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing or maintaining or participating in advances or extensions of
credit hereunder or to reduce any amount receivable hereunder, in each case by
an amount which such Lender deems material, then, in any such case, the Company
shall pay such Lender, upon demand, such additional amount or amounts as such
Lender shall have determined will compensate such Lender for such increased
costs or reduction.
(b) If any Lender shall have determined that the adoption of
any applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of any Lender) or any Lender's holding company, with any request
or directive regarding capital adequacy (whether or not having the force of the
law) of any such authority, central
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bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or on the capital of such Lender's holding
company as a consequence of its obligations hereunder to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies and the policies of
such Lender's holding company with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the Company shall
pay to such Lender the additional amount or amounts as such Lender shall have
determined will compensate such Lender or such Lender's holding company for such
reduction. Such Lender's determination of such amounts shall be conclusive and
binding on the Company absent clear and obvious error.
(c) A certificate of a Lender setting forth the amount or
amounts payable pursuant to Sections 3.05(a) and 3.05(b) above shall be
conclusive absent clear and obvious error. The Company shall pay such Lender the
amount shown as due on any such certificate within 10 days after receipt
thereof.
(d) In the event any Lender shall be entitled to
compensation pursuant to Section 3.05(a) or Section 3.05(b), it shall promptly
notify the Administrative Agent and the Company of the event by reason of which
it has become so entitled; provided, however, no failure on the part of any
Lender to demand compensation under clause (a) or clause (b) above on one
occasion shall constitute a waiver of its right to demand compensation on any
other occasion.
SECTION 3.06. TAXES. (a) Except as set forth in clause (c) below or as
required by law, all payments made by the Company under this Agreement shall be
made free and clear of, and without reduction for or on account of, any present
or future taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding income and franchise taxes imposed on
the Administrative Agent or a Lender by (i) the United States of America or any
political subdivision or taxing authority thereof or therein, (ii) the
jurisdiction under the laws of which the Administrative Agent or such Lender is
organized or in which it has its principal office or is managed and controlled
or any political subdivision or taxing authority thereof or therein, or (iii)
any jurisdiction in which such Lender's Lending Office is located or any
political subdivision or taxing authority thereof or therein (such non-excluded
taxes being called "Taxes"). If any Taxes are required to be withheld from any
amounts payable to the Administrative Agent, or any Lender hereunder, or under
the Notes, the amount so payable to the Administrative Agent or such Lender
shall be increased to the extent necessary to yield to the Administrative Agent
or such Lender (after payment of all Taxes and free and clear of all liability
in respect of such Taxes) interest or any such other amounts payable hereunder
at the rates or in the amounts specified in this Agreement and the Notes.
Whenever any Taxes are payable by the Company, as promptly as possible
thereafter, the Company shall send to the Administrative Agent for its own
account or for the account of such Lender, as the case may be, a certified copy
of an original official receipt showing payment thereof. If the Company fails to
pay Taxes when due to the appropriate taxing authority or fails to remit to the
Administrative Agent the required receipts or other required documentary
evidence, the Company shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
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Administrative Agent or such Lender as a result of any such failure together
with any expenses payable by the Administrative Agent or such Lender in
connection therewith.
(b) Prior to the first Interest Payment Date, each Lender
that is not organized under the laws of the United States or a state thereof
agrees that it will deliver to the Administrative Agent (i) two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224 or successor
applicable form, as the case may be, certifying in each case that such Lender is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, and (ii) an Internal
Revenue Service Form W-8 or W-9 or successor applicable form, as the case may
be, to establish an exemption from United States back-up withholding tax. Each
Lender which delivers to the Company and the Administrative Agent a Form 1001 or
4224 and Form W-8 or W-9 pursuant to the preceding sentence further undertakes
to deliver to the Administrative Agent two further copies of the said statement
and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or
other manner of certification, as the case may be, on or before the date that
any such letter or form expires or becomes obsolete or after the occurrence of
any event requiring a change in the most recent letter and form previously
delivered by it to the Administrative Agent, and such extensions or renewals
thereof as may reasonably be requested by the Administrative Agent, certifying
in the case of a Form 1001 or 4224 that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes.
SECTION 3.07. PRO RATA TREATMENT AND PAYMENTS. Each borrowing by the
Company from each Lender, each payment by the Company on account of any fee and
any reduction of the Revolving Credit Commitment of the Lenders hereunder shall
be made pro rata according to the respective relevant Commitment Proportions of
the Lenders provided, however, the portion of the fee required to be paid
pursuant to Section 3.04(b) which is allocable to the Contingent Commitment
shall be paid solely to EAB for its account and any reduction of the Revolving
Credit Commitment shall first reduce the Contingent Commitment. Each payment
(including each prepayment) by the Company on account of principal of and
interest on each Loan shall be made pro rata according to the respective
outstanding principal amounts of such Loans held by each Lender; provided,
however, in the event EAB has funded any Revolving Credit Loans pursuant to the
Contingent Commitment, then all payments of principal received in respect to the
Revolving Credit Loans shall be applied first to the Revolving Credit Loans
funded by EAB pursuant to the Contingent Commitment until the principal amount
of all such Revolving Credit Loans have been paid in full. All payments
(including prepayments) to be made by the Company on account of principal,
interest, fees and reimbursement obligations shall be made without set-off or
counterclaim and shall be made to the Administrative Agent, for the account of
the Lenders (or EAB as set forth above) at the Payment Office of the
Administrative Agent in Dollars in immediately available funds. The
Administrative Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds by wire transfer of each Lender's portion of such payment
to such Lender for the account of its Lending Office. The Administrative Agent
may, in its sole discretion, directly charge principal and interest payments due
in respect of the Loans to the Company's or any Corporate Guarantors' accounts
at the Payment Office or other office of the Administrative Agent. Except as
otherwise
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provided in the definition of "Interest Period", if any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day, and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Administrative Agent to enter
into this Agreement and to make the Loans herein provided for, the Company and
each Corporate Guarantor represents and warrants to each Lender and the
Administrative Agent that:
SECTION 4.01. ORGANIZATION, POWERS. The Company (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has the corporate power and authority to own its
properties and to carry on its business as now being conducted, (c) is duly
qualified to do business in every jurisdiction wherein the conduct of its
business or the ownership of its properties are such as to require such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect, and (d) has the corporate power
to execute, deliver and perform each of the Loan Documents to which it is a
party, including, without limitation, the power to obtain extensions of credit
hereunder and to execute and deliver the Notes. Each Guarantor is (a) a
corporation, limited liability company or a limited partnership, duly organized
or formed, as applicable, validly existing and in good standing under the laws
of the state of its incorporation or formation, (b) has the corporate, limited
partnership or limited liability company and authority to own or lease its
properties and carry on its business as now being conducted, (c) is duly
qualified to do business in every jurisdiction wherein the conduct of its
business or the ownership of its properties are such as to require such
qualification except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect, and (d) has the corporate limited
liability company power or partnership power as applicable to execute, deliver
and perform each of the Loan Documents to which it is a party.
SECTION 4.02. AUTHORIZATION OF BORROWING, ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by the Company of this Agreement, and the
other Loan Documents to which it is a party, the borrowings and the other
extensions of credit to the Company hereunder, and the execution, delivery and
performance by each of the Guarantors of the Loan Documents to which such
Guarantor is a party, (a) have, with respect to the Company and each Corporate
Guarantor, been duly authorized by all requisite corporate and limited liability
company action, as applicable, (b) will not violate or require any consent
(other than consents as have been made or obtained and which are in full force
and effect) under (i) any provision of law applicable to the Company or any
Guarantor, any rule or regulation of any Governmental Authority, or the
Certificate of Incorporation or By-laws or the Articles of Organization and
Operating Agreement, as applicable, of the Company or of any Corporate Guarantor
or (ii) any order of any court or other Governmental Authority binding on the
Company or any Guarantor or any indenture, agreement or other instrument to
which the Company or any Guarantor is a party, or by which the Company or any
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Guarantor or any of its property is bound, and (c) will not be in conflict with,
result in a breach of or constitute (with due notice and/or lapse of time) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any Lien, of any nature whatsoever upon any of the
property or assets of the Company or any Guarantor other than as contemplated by
this Agreement or the other Loan Documents. This Agreement and each other Loan
Document to which the Company or any Guarantor is a party constitutes a legal,
valid and binding obligation of the Company and each such Guarantor, as the case
may be, enforceable against the Company and each such Guarantor, as the case may
be, in accordance with its terms except to the extent that enforcement may be
limited by applicable bankruptcy, reorganization, moratorium, insolvency and
similar laws affecting creditors' rights generally or by equitable principles of
general application, regardless of whether considered in a proceeding in equity
or at law.
SECTION 4.03. FINANCIAL CONDITION. (a) The Company has heretofore
furnished to each Lender (i) the audited consolidated balance sheet of the
Company and its Subsidiaries and the related consolidated statement of income,
retained earnings and cash flow of the Company and its Subsidiaries, audited by
Pricewaterhouse Coopers LLP, independent certified public accountants, for the
fiscal year ended December 31, 1998, and (ii) the unaudited consolidated and
consolidating balance sheet of the Company and its Subsidiaries and the related
consolidated and consolidating statements of income, retained earnings and cash
flow of the Company and its Subsidiaries for the three month period ended March
31, 1999. Such financial statements were prepared in conformity with Generally
Accepted Accounting Principles, applied on a consistent basis, and fairly
present the financial condition and results of operations of the Company and its
Subsidiaries, on a consolidated basis, as of the date of such financial
statements and for the periods to which they relate and, since March 31, 1999,
no Material Adverse Effect has occurred. The Company shall deliver to the
Administrative Agent, with a copy for each Lender a certificate of the Chief
Financial Officer of the Company to that effect on the Closing Date. Other than
obligations and liabilities arising in the ordinary course of business since
December 31, 1998, there are no obligations or liabilities contingent or
otherwise, of the Company or any of its Subsidiaries which are not reflected or
disclosed on such audited statements.
(b) The Company, individually and together with the
Corporate Guarantors, is Solvent and immediately after giving effect to the Loan
and the execution of each Loan Document, will be Solvent.
SECTION 4.04. TAXES. All assessed deficiencies resulting from Internal
Revenue Service examinations of the federal income tax returns of the Company or
any Guarantor have been discharged or reserved against in accordance with
Generally Accepted Accounting Principles. The Company and each Guarantor has
filed or caused to be filed all federal, state and local tax returns which are
required to be filed, and has paid or has caused to be paid all taxes as shown
on said returns or on any assessment received by them, to the extent that such
taxes have become due, except taxes which are being contested in good faith and
which are reserved against in accordance with Generally Accepted Accounting
Principles.
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SECTION 4.05. TITLE TO PROPERTIES. The Company and each Corporate
Guarantor has good title to their respective properties and assets reflected on
the financial statements referred to in Section 4.03 hereof, except for such
properties and assets as have been disposed of since the date of such financial
statements as no longer used or useful in the conduct of their respective
businesses or as have been disposed of in the ordinary course of business, and
all such properties and assets are free and clear of all Liens other than
Permitted Liens.
SECTION 4.06. LITIGATION. (a) There are no actions, suits or proceedings
(whether or not purportedly on behalf of the Company or of any Guarantor)
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any Guarantor at law or in equity or before or by any Governmental
Authority, which involve any of the transactions contemplated herein or which,
if adversely determined against the Company or such Guarantor could reasonably
be expected to have a Material Adverse Effect or which involve a claim against
the Company or any Guarantor in excess of $200,000 which is not fully covered by
insurance (other than reasonable and customary deductibles); and (b) neither the
Company nor any Guarantor is in default with respect to any judgment, writ,
injunction, decree, rule or regulation of any Governmental Authority which could
reasonably be expected to result in a Material Adverse Effect.
SECTION 4.07. AGREEMENTS. Neither the Company nor any Guarantor is a
party to any agreement or instrument or, with respect to the Company or any
Corporate Guarantor, subject to any charter or other corporate restriction or
any judgment, order, writ, injunction, decree or regulation which could
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any Guarantor is in default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any material
agreement or instrument to which it is a party.
SECTION 4.08. COMPLIANCE WITH ERISA. Each Plan is in compliance in all
material respects with ERISA; no Plan is insolvent or in reorganization, no Plan
or Plans have an Unfunded Current Liability, and no Plan has an accumulated or
waived funding deficiency; neither the Company, any Corporate Guarantor nor any
ERISA Affiliate has incurred any liability to or on account of a Plan pursuant
to Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or reasonably expects to
incur any liability under any of the foregoing sections on account of the prior
termination of participation in or contributions to any such Plan; no
proceedings have been instituted to terminate any Plan; no condition exists
which could reasonably be expected to present a risk to the Company, any
Corporate Guarantor or any ERISA Affiliate of incurring a liability in excess of
$50,000 to or on account of a Plan pursuant to the foregoing provisions of ERISA
and the Code; no lien imposed under the Code or ERISA on the assets of the
Company, any Corporate Guarantor or any of its ERISA Affiliates exists or to the
knowledge of the Company is likely to arise on account of any Plan and the
Company and such Corporate Guarantor may terminate contributions to any other
employee benefit plans maintained by it without incurring any material liability
to any Person interested therein.
SECTION 4.09. FEDERAL RESERVE REGULATIONS; USE OF PROCEEDS. (a) Neither
the Company nor any Guarantor is engaged principally in, nor has as one of its
important activities, the
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business of extending credit for the purpose of purchasing or carrying any
"margin stock" (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System of the United States, as amended from time to time).
(b) No part of the proceeds of the Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or to carry margin stock or to extend credit to others for the
purpose of purchasing or carrying margin stock, or to refund indebtedness
originally incurred for such purposes, or (ii) for any purpose which violates or
is inconsistent with the provisions of Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
(c) The proceeds of the Loan shall be used solely for the purposes
permitted under Section 3.02.
SECTION 4.10. APPROVALS. No registration with or consent or approval of,
or other action by, any Governmental Authority or any other Person is required
in connection with the execution, delivery and performance of this Agreement by
the Company or any Guarantor, or with the execution and delivery of other Loan
Documents to which it is a party or, with respect to the Company, the borrowings
hereunder.
SECTION 4.11. SUBSIDIARIES. Attached hereto as Schedule I is a correct
and complete list of each of the Company's and each Corporate Guarantor's
Subsidiaries as of the Closing Date showing as to each Subsidiary, its name, the
jurisdiction of its incorporation, its shareholders or other owners of an
interest in each Subsidiary and the number of outstanding shares or other
ownership interest owned by each shareholder or other owner of an interest.
SECTION 4.12. HAZARDOUS MATERIALS. The Company and each Guarantor is in
compliance in all material respects with all applicable Environmental Laws and
neither the Company nor any Guarantor has used Hazardous Materials on, from, or
affecting any property now owned or occupied or hereafter owned or occupied by
the Company or any Guarantor in any manner which violates any applicable
Environmental Law. To the best of the Company's knowledge, no prior owner of any
such property or any tenant, subtenant, prior tenant or prior subtenant have
used Hazardous Materials on, from, or affecting such property in any manner
which violates any applicable Environmental Law.
SECTION 4.13. INVESTMENT COMPANY ACT. Neither the Company nor any
Corporate Guarantor is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.14. NO DEFAULT. No Default or Event of Default has occurred
and is continuing.
SECTION 4.15. MATERIAL CONTRACTS. All Material Contracts are disclosed
on Schedule V hereto. Each such Material Contract is in full force and effect
and is binding upon and enforceable
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against the Company and any Corporate Guarantor, in each case, to the extent
they are a party thereto, and, to the Company's knowledge, all other parties
thereto in accordance with its terms, and there exists no default, in any
material respect, under any Material Contract by the Company or any Corporate
Guarantor or, to the Company's knowledge, by any other party thereto which has
not been fully cured or waived.
SECTION 4.16. PERMITS AND LICENSES. The Company and each Corporate
Guarantor each has all permits, licenses, certifications, authorizations and
approvals required for it lawfully to own and operate their respective
businesses except where the failure to obtain or retain such permits, licenses,
certifications, authorizations or approvals could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 4.17. COMPLIANCE WITH LAW. The Company and each Guarantor are
each in compliance, with all laws, rules, regulations, orders and decrees which
are applicable to the Company or any Guarantor, or to any of their respective
properties except where the failure to be in compliance cannot reasonably be
expected to result in a Material Adverse Effect.
SECTION 4.18. Y2K. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (a) the Company's or any
Corporate Guarantor's computer systems and (b) equipment containing embedded
microchips (including systems and equipment supplied by others or with which the
Company's or any Corporate Guarantor's systems interface, and the testing of all
such systems and equipment, as so reprogrammed, will be completed by June 30,
1999 except where the failure to complete such testing and reprogramming cannot
reasonably be expected to have a Material Adverse Effect; provided, however, for
purposes of this Section 4.18, a failure of the Company or the Guarantor's
billing or accounting systems to be properly functioning in and following the
year 2000 shall be deemed to have a Material Adverse Effect. The cost to the
Company and each Corporate Guarantor's of such reprogramming and testing and of
the reasonably foreseeable consequences of the year 2000 to the Company and each
Corporate Guarantor (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or Event
of Default or have a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Company and each Corporate
Guarantor are and, with ordinary course upgrading and maintenance, will continue
to be sufficient to permit the Company and each of its Subsidiaries to conduct
their respective businesses without having a Material Adverse Effect.
SECTION 4.19. DISCLOSURE. Neither this Agreement, any other Loan
Document, nor any other document, certificate or written statement furnished to
the Administrative Agent or any Lender by or on behalf of the Company or any
Guarantor for use in connection with the transactions contemplated by this
Agreement contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances in which they were made.
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SECTION 4.20. SECURITY AGREEMENTS. Each Security Agreement executed by
the Company and each Corporate Guarantor shall constitute a valid and continuing
lien on and security interest in the collateral referred to in the Security
Agreement in favor of the Administrative Agent for the ratable benefit of the
Lenders, which shall be, upon the filing of the Uniform Commercial Code
financing statements delivered on the Closing Date on behalf of the Company and
each Corporate Guarantor at the offices in the jurisdictions listed on Schedule
C to each Security Agreement prior to all other Liens, claims and rights of all
other Persons and shall be enforceable as such against all other Persons.
SECTION 4.21. PLEDGE AGREEMENT. The Pledge Agreement executed by the
Company shall, pursuant to its terms, constitute a valid and continuing lien on
and security interest in the collateral referred to in such Pledge Agreement in
favor of the Administrative Agent, for the ratable benefit of the Lenders, which
shall be prior to all other Liens, claims and rights of all other Persons in
such collateral.
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01. CONDITIONS TO LOANS. The several obligations of each
Lender to make the Loan hereunder are subject to the following conditions
precedent:
(a) NOTES. On or prior to the Closing Date, each Lender shall have
received for the account of each Lender a Note, each duly executed by the
Company.
(b) GUARANTIES. On or prior to the Closing Date, the Administrative
Agent shall have received, with a counterpart for each Lender, the Guaranties
duly executed by each Guarantor.
(c) SECURITY DOCUMENTS. On or prior to the Closing Date, the
Administrative Agent shall have received (i) the Security Documents duly
executed by the Company and each Guarantor to the extent it is a party thereto
and (ii) such stock certificates or members certificates pledged pursuant to the
Pledge Agreement and stock powers, if applicable, duly executed in blank by the
Company, as shall be necessary.
(d) OPINION OF COUNSEL. On or prior to the Closing Date, the
Administrative Agent shall have received, with a copy for each Lender, a written
opinion of counsel for the Company and the Guarantors dated the Closing Date and
addressed to the Administrative Agent and the Lenders, substantially in the form
of Exhibit F attached hereto.
(e) SUPPORTING DOCUMENTS. On or prior to the Closing Date, the
Administrative Agent shall have received, with a copy for each Lender, (i) a
certificate of good standing for the Company and each Corporate Guarantor from
the secretary of state of the states of their organizational jurisdiction dated
as of a recent date; (ii) certified copies of the Certificate of Incorporation
and By-laws or Articles of Organization and Operating Agreement, as applicable,
of the Company and each
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Corporate Guarantor; (iii) a certificate of the Secretary or an Assistant
Secretary of the Company and each Corporate Guarantor dated the Closing Date and
certifying: (x) that neither the Certificate of Incorporation nor the By-laws or
the Articles of Organization or Operating Agreement, as applicable, of the
Company nor of any Corporate Guarantor has been amended since the date of their
certification (or if there has been any such amendment, attaching a certified
copy thereof); (y) that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of the Company and by the board of
directors or other governing body or Persons of each Corporate Guarantor
authorizing the execution, delivery and performance of each Loan Document to
which it is a party and, with respect to the Company, the borrowings and other
extensions of credit hereunder; and (z) the incumbency and specimen signature of
each officer of the Company and of each officer or other authorized Person of
each Corporate Guarantor executing each Loan Document to which the Company or
any Corporate Guarantor is a party and any certificates or instruments furnished
pursuant hereto or thereto, and a certification by another officer of the
Company and each Corporate Guarantor as to the incumbency and signature of the
Secretary or Assistant Secretary of the Company and each Corporate Guarantor;
and (iv) such other documents as the Administrative Agent may reasonably
request.
(f) INSURANCE. On or prior to the Closing Date, the Administrative
Agent shall have received a certificate or certificates of insurance from an
independent insurance broker or brokers confirming the insurance required to be
maintained pursuant to Section 6.01 hereof, and evidence that the Administrative
Agent has been named loss payee and additional insured with respect to each
policy of such insurance.
(g) FILINGS, REGISTRATIONS AND RECORDINGS. On or prior to the
Closing Date, the Administrative Agent shall have received each document,
including, without limitation, UCC-1 Financing Statements required by the
Security Documents or under the laws of any jurisdiction to be filed, registered
or recorded in order to create, in favor of the Administrative Agent for the
ratable benefit of the Lenders, a perfected first lien on the collateral
described in the Security Documents, in form to be properly filed, registered or
recorded, in each office in each such jurisdiction.
(h) ASSETS FREE FROM LIENS. Prior to the Closing Date, the
Administrative Agent shall have received UCC-1 financing statement, tax and
judgment lien searches evidencing that the Company's and each Corporate
Guarantor's accounts receivable, inventory, equipment and all other assets of
the Company and each Corporate Guarantor are free and clear of all Liens except
(i) Permitted Liens and (ii) Liens in favor of the Lenders.
(i) FEES AND EXPENSES. On or prior to the Closing Date, the
Administrative Agent shall have received for itself and for the account of the
Lenders (i) all fees payable to the Lenders pursuant to the Loan Documents on or
prior to the Closing Date and (ii) reimbursement of expenses in accordance with
Section 10.03.
(j) NO LITIGATION. There shall exist no action, suit, investigation,
litigation or proceeding affecting the Company or any Guarantor pending or
threatened before any court, governmental
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agency or arbiter that could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
(k) CONSENTS AND APPROVALS. All governmental and third party
consents and approvals necessary in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall have been
obtained (without the imposition of any conditions that are not acceptable to
the Required Lenders) and shall remain in effect, and no law or regulation shall
be applicable in the reasonable judgment of the Required Lenders that imposes
materially adverse conditions upon the transactions contemplated hereby.
(l) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
material adverse change in the business, operations, properties, prospects or
condition (financial or otherwise) of the Company or any Guarantor since March
31, 1999.
(m) PERSONAL FINANCIAL STATEMENTS. The Individual Guarantors shall
have furnished to the Administrative Agent prior to the Closing Date completed
personal financial statements on the Administrative Agent's form thereof
prepared as of a recent date, together with a schedule of contingent liabilities
and guarantees and letter certifying to the Lenders that since the date of those
financial statements no material increase in liabilities or material adverse
changes (financial or otherwise) have occurred and that each Individual
Guarantor maintains cash or cash equivalents in an amount at least equal to the
amount of cash and cash equivalents maintained by him as of the date of such
statements, and the Lenders shall have been satisfied in their sole discretion
with the form and substance thereof.
(n) DUE DILIGENCE. The Lenders shall have completed their due
diligence with respect to the Company and each Guarantor including, without
limitation, bank checkings, trade checkings, customer checkings and litigation
checkings and the Lenders shall have been satisfied with the result thereof.
(o) SUBORDINATION AGREEMENTS. On or prior to the Closing Date, the
Administrative Agent shall have received, with a copy for each Lender, each
Subordination Agreement, duly executed by Hugh O'Kane, Jr., Kevin O'Kane and
Denis O'Kane, as applicable, with respect to the indebtedness described therein,
together with a copy of any note, agreement or other document evidencing such
Subordinated Indebtedness.
(p) ACCOUNTS RECEIVABLE AGING AND REVENUE SUMMARY. Prior to the
Closing Date, the Lenders shall have received the latest monthly accounts
receivable aging and revenue summary, which shall be in form and substance
satisfactory to the Lenders.
(q) REPORTS. Prior to the Closing Date, the Lenders shall have
received (i) the quarterly job progress report and completed contract report for
the fiscal quarter ended March 31, 1999, (ii) accounts receivable reconciliation
reports with respect to the fiscal quarter ended March 31, 1999, which reports
shall be in form and substance satisfactory to the Lenders.
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(r) SHAREHOLDER AGREEMENT; PREFERRED STOCK. Prior to the Closing
Date, the Lenders shall have received a copy of the Shareholder Agreement and
any documents and agreements executed in connection therewith, including, but
not limited to all documents pertaining to the issuance of preferred stock of
the Company, and all such documents shall be in form and substance satisfactory
to the Lenders.
(s) COMPLETION OF PROCEEDINGS. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection with the
transactions contemplated by the Loan Documents, shall be satisfactory in form
and substance to the Administrative Agent, the Lenders and their counsel.
(t) OTHER INFORMATION, DOCUMENTATION. The Administrative Agent and
the Lenders shall have received such other and further information and
documentation as any of them may require, including, but not limited to, any
information or documentation relating to compliance by the Company and each
Corporate Guarantor with the requirements of all Environmental Laws.
SECTION 5.02. CONDITIONS TO ALL EXTENSIONS OF CREDIT. The obligation of
the Lenders to make each Loan hereunder, including, without limitation, the
initial Loan, is subject to the conditions precedent set forth in Section 5.01
and the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties by the Company and each Corporate Guarantor pursuant to this
Agreement and the other Loan Documents to which each is a party shall be true
and correct in all material respects on and as of the Borrowing Date, with the
same effect as though such representations and warranties had been made on and
as of such date unless such representation is as of a specific date, in which
case, as of such date.
(b) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing on the Closing Date.
Each Borrowing hereunder shall constitute a representation and warranty of the
Company that the statements contained in clauses (a) and (b) of Section 5.02
are true and correct on and as of the Borrowing Date.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company covenants and agrees with each Lender that so long as the
Revolving Credit Commitment remains in effect, or any of the principal of or
interest on the Notes or any other Obligations hereunder shall be unpaid it
will, and will cause each Corporate Guarantor to:
SECTION 6.01. EXISTENCE, PROPERTIES, INSURANCE. Do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate, partnership or limited liability company, as applicable, existence,
rights and franchises and comply in all material respects with all
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laws applicable to it; at all times maintain, preserve and protect all
franchises and trade names and preserve all of its property used or useful in
the conduct of its business and keep the same in good repair, working order and
condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, replacements, betterments and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted in the ordinary course at all times; and at all times
maintain insurance covering its assets and its businesses with financially sound
and reputable insurance companies or associations in such amounts and against
such risks (including, without limitation, hazard, business interruption, public
liability and product liability) as are usually carried by companies engaged in
the same or similar business. Each such policy of insurance shall provide for at
least thirty (30) days' prior written notice to the Administrative Agent of any
modification or cancellation of such policies and shall name the Administrative
Agent as loss payee and additional insured. The Company shall provide to the
Administrative Agent promptly upon receipt thereof evidence of the annual
renewal of each such policy.
SECTION 6.02. PAYMENT OF INDEBTEDNESS AND TAXES. (a) Pay all
indebtedness and obligations, now existing or hereafter arising, as and when due
and payable and (b) pay and discharge or cause to be paid and discharged
promptly all taxes, assessments and government charges or levies imposed upon it
or upon its income and profits, or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies or otherwise which,
if unpaid, might become a lien or charge upon such properties or any part
thereof; provided, however, that neither the Company nor any Corporate Guarantor
shall be required to pay and discharge or cause to be paid and discharged any
such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and the Company or
such Corporate Guarantor, as the case may be, shall have set aside on its books
adequate reserves determined in accordance with Generally Accepted Accounting
Principles with respect to any such tax, assessment, charge, levy or claim so
contested; provided, further, that, subject to the foregoing proviso, the
Company and each Corporate Guarantor will pay or cause to be paid all such
taxes, assessments, charges, levies or claims upon the commencement of
proceedings to foreclose any lien which has attached as security therefor.
SECTION 6.03. FINANCIAL STATEMENTS, REPORTS, ETC. Furnish to the
Administrative Agent and each Lender:
(a) (i) as soon as available, but in any event within one
hundred twenty (120) days after the end of each fiscal year of the
Company, a copy of the audited consolidated balance sheet of the Company
and its consolidated Subsidiaries as of the end of such year and the
related audited consolidated statements of income, shareholders equity
and cash flow for such year, in each case, prepared in accordance with
Generally Accepted Accounting Principles setting forth in comparative
form the respective figures as of the end of and for the previous fiscal
year, and accompanied by a report thereon of independent certified
public accountants of recognized standing selected by the Company and
satisfactory to the Lenders (the "Auditor"), which report shall be
unqualified; and (ii) as soon as available, but in any event within one
hundred twenty (120) days after the end of each fiscal year of the
Company, a
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copy of the management prepared consolidating financial statements of
the Company and its consolidated Subsidiaries setting forth in
comparative form the respective figures as of the end of and for the
previous fiscal year and which support the financial statements
delivered pursuant to clause (i), in each case of (i) and (ii) prepared
in accordance with Generally Accepted Accounting Principles, applied on
a consistent basis, and with respect to the statements referred to in
clause (ii) accompanied by a certificate to that effect executed by the
Chief Financial Officer;
(b) as soon as available, but in any event not later than
forty five (45) days after the end of each quarterly period of each
fiscal year of the Company, a copy of the unaudited interim consolidated
and consolidating balance sheet of the Company and its consolidated
Subsidiaries as of the end of each such quarter and the related
unaudited interim consolidated and consolidating statements of income,
shareholders equity and cash flow for such quarter and the portion of
the fiscal year through such date and setting forth in each case in
comparative form the respective figures for the corresponding date and
period in the previous fiscal year (except that the quarterly
comparisons to prior year shall not be required for the statement of
cash flow until the first quarter of 2000), in each case prepared by the
Chief Financial Officer in accordance with Generally Accepted Accounting
Principles, applied on a consistent basis, and accompanied by a
certificate to that effect executed by the Chief Financial Officer;
(c) a certificate prepared and signed by the Chief Financial
Officer with each delivery required by clauses (a)(ii) and (b), as to
whether or not, as of the close of such preceding period and at all
times during such preceding period, the Company or each of its
Subsidiaries, as the case may be, was in compliance with all the
provisions in this Agreement, showing computation of financial covenants
and quantitative negative covenants, and if the Chief Financial Officer
shall have obtained knowledge of any default in such compliance or
notice of such default, it shall disclose in such certificate such
default or defaults or notice thereof and the nature thereof, whether or
not the same shall constitute a Default or an Event of Default
hereunder;
(d) a certificate prepared and signed by the Auditor with
each delivery required by clause (a) above stating whether they obtained
knowledge during the course of their examination of such financial
statements of any Default or Event of Default (which certificate may be
limited to the extent required by any accounting rules or guidelines
binding upon the Auditors);
(e) at all times indicated in clause (a) above, a copy of
the management letter, if any, prepared by the Auditor;
(f) if applicable, promptly after filing thereof, copies of
all regular and periodic financial information, proxy materials and
other information and reports which the Company or any of its
Subsidiaries shall file with the Securities and Exchange Commission;
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(g) promptly after submission to any government or
regulatory agency, all documents and information furnished to such
government or regulatory agency other than such documents and
information prepared in the normal course of business and which could
not reasonably be expected to result in any materially adverse action to
be taken by such agency;
(h) as soon as available and, in any event, within one
hundred twenty (120) days after the end of each calendar year, financial
statements of each Individual Guarantor for the preceding year prepared
on the Administrative Agent's form thereof together with a schedule of
contingent liabilities and guaranties;
(i) as soon as available and, in any event, within thirty
(30) days of the filing thereof, the federal, state and local returns of
the Individual Guarantor, including schedules thereto;
(j) as soon as available and in any event within twenty one
(21) days after the end of each month, detailed monthly schedules of
accounts receivable and accounts payables aging and a revenue summary,
each in form and substance satisfactory the Lenders;
(k) forty-five (45) days after the end of each fiscal
quarter, a quarterly account receivable reconciliations report and
quarterly job progress and completed contract reports for jobs accounts
for on a percentage of completion basis; and
(l) promptly, from time to time, such other information
regarding the operations, business affairs and condition (financial or
otherwise) of the Company or any of its Subsidiaries as any Lender may
request.
SECTION 6.04. BOOKS AND RECORDS; ACCESS TO PREMISES. Keep adequate
records and proper books of record and account in which complete entries will be
made in a manner to enable the preparation of financial statements in accordance
with Generally Accepted Accounting Principles, and which shall reflect all
financial transactions of the Company and each of its Subsidiaries. At any time,
and from time to time (upon not less than three (3) Business Days' prior notice
if no Default or Event of Default has occurred and is continuing provided no
prior notice shall be required if a Default or Event of Default shall have
occurred and be continuing), permit any Lender or any agent or representative
thereof, to examine and make copies of any abstracts from the books and records
of such information which the Lenders deem necessary or desirable (including,
without limitation, the financial records of the Company and the Corporate
Guarantors) and to visit the properties of the Company or any Corporate
Guarantor and to discuss the affairs, finances and accounts of the Company or
any Corporate Guarantor with any of their respective executive officers or the
Company's independent accountants; and as often as required at any time upon
reasonable notice to the Company or any Corporate Guarantor and during normal
business hours, permit either any Lender or any agent or representative thereof,
to examine and audit at the expense of the Company the inventory and receivables
of the Company and such Corporate Guarantor, provided that so long as
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no Default or Event of Default has occurred and is then continuing, the Company
shall only be obligated to pay the costs and charges of one field audit in each
fiscal year (such costs and charges not to exceed $10,000 per audit), commencing
with the audit to be conducted on or about November 30, 1999.
SECTION 6.05. NOTICE OF ADVERSE CHANGE. Promptly notify each Lender in
writing of (a) any change in the business or the operations of the Company or
any Corporate Guarantor which could reasonably be expected to have a Material
Adverse Effect, and (b) any information which indicates that any financial
statements which are the subject of any representation contained in this
Agreement, or which are furnished to the Administrative Agent or the Lenders
pursuant to this Agreement, fail, in any material respect, to present fairly, as
of the date thereof and for the period covered thereby, the financial condition
and results of operations purported to be presented therein, disclosing the
nature thereof.
SECTION 6.06. NOTICE OF DEFAULT. Promptly notify each Lender of any
Default or Event of Default which shall have occurred, which notice shall
include a written statement as to such occurrence, specifying the nature thereof
and the action (if any) which is proposed to be taken with respect thereto.
SECTION 6.07. NOTICE OF LITIGATION. Promptly notify each Lender of any
action, suit or proceeding at law or in equity or by or before any governmental
instrumentality or other agency which, if adversely determined against the
Company or any Guarantor on the basis of the allegations and information set
forth in the complaint or other notice of such action, suit or proceeding, or in
the amendments thereof, if any, could reasonably be expected to have a Material
Adverse Effect or which involve a claim against the Company or any Guarantor in
excess of $200,000 which is not fully covered by insurance (other than
reasonable and customary deductibles).
SECTION 6.08. NOTICE OF DEFAULT IN OTHER AGREEMENTS. Promptly notify
each Lender of any default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any agreement or
instrument to which the Company or any Guarantor is a party which default could
reasonably be expected to have a Material Adverse Effect.
SECTION 6.09. NOTICE OF ERISA EVENT. Promptly deliver to each Lender a
certificate of the Chief Financial Officer of the Company setting forth details
as to such occurrence and such action, if any, which the Company, such Corporate
Guarantor or such ERISA Affiliate is required or proposes to take, together with
any notices required or proposed to be given to or filed with or by the Company,
such Corporate Guarantor ERISA Affiliate, the PBGC, a Plan participant or the
Plan administrator, with respect thereto: that a Reportable Event has occurred
with respect to a Plan, that an accumulated funding deficiency has been incurred
or an application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section
412 of the Code with respect to a Plan, that a Plan has been terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA, that one
or more Plans have an Unfunded
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Current Liability giving rise to a Lien under ERISA, that proceedings may be or
have been instituted to terminate a Plan, that a proceeding has been instituted
pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan,
or that the Company, any Corporate Guarantor or any ERISA Affiliate will incur
any liability (including any contingent or secondary liability) to or on account
of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4201 or 4204 of ERISA. The Company will deliver to each Lender a complete copy
of the annual report (Form 5500) of each Plan that is a single employer Plan
(within the meaning of Section 4001(a)(15) of ERISA), filed with the Internal
Revenue Service. In addition to any certificates or notices delivered to each
Lender pursuant to the first sentence hereof, copies of annual reports and any
other notices received by the Company or any Corporate Guarantor required to be
delivered to each Lender hereunder shall be delivered to each Lender no later
than ten days after the later of the date such report or notice has been filed
with the Internal Revenue Service or the PBGC, given to Plan participants or
received by the Company or a Corporate Guarantor.
SECTION 6.10. NOTICE OF ENVIRONMENTAL LAW VIOLATIONS. Promptly notify
each Lender of the receipt of any notice of an action, suit, and proceeding
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, pending against the Company or any
Guarantor relating to any alleged violation of any Environmental Law which could
reasonably be expected to have a Material Adverse Effect.
SECTION 6.11. NOTICE REGARDING MATERIAL CONTRACTS. Promptly notify each
Lender of (a) any termination (prior to the end of its stated term), material
amendment, material supplement or other material modification of any Material
Contract and (b) the occurrence of a default by the Company or by any other
party to any Material Contract of which the Company is aware.
SECTION 6.12. COMPLIANCE WITH APPLICABLE LAWS. Comply with the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority.
SECTION 6.13. SUBSIDIARIES. Promptly notify the Lenders, prior to the
occurrence thereof, of the creation, establishment or acquisition, of any
Subsidiary of the Company or any Corporate Guarantor not existing on the date
hereof and cause (a) each Subsidiary to execute a Guaranty and such Security
Documents that the Lenders shall require, including, but not limited to a
Security Agreement and a Pledge Agreement, concurrently with the creation,
establishment or acquisition of such Subsidiary, and concurrently with the
delivery of each Security Agreement and Guaranty pursuant to this Section 6.13
provide to the Administrative Agent the supporting documents identified in
clauses (i), (ii), and (iii) of Section 5.01(e) in each case with respect to the
Subsidiary executing the same, together with a favorable written opinion of
counsel to such Subsidiary in form and substance satisfactory to the Lenders, as
to the due execution, delivery and enforceability of such documents and such
other matters as the Lenders may request.
SECTION 6.14. ENVIRONMENTAL LAWS. Comply in all material respects with
the requirements of all Environmental Laws, provide to the Lenders all
documentation in connection with such compliance that the Lenders may reasonably
request, and defend, indemnify, and hold harmless
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the Administrative Agent and each Lender and their respective employees, agents,
officers, and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of, or in any way
related to, (a) the presence, disposal, or release of any Hazardous Materials on
any property at any time owned or occupied by the Company or any Guarantor; (b)
any personal injury (including wrongful death) or property damage (real or
personal) arising out of or related to such Hazardous Materials; (c) any lawsuit
brought or threatened, settlement reached, or government order relating to such
Hazardous Materials, and/or (d) any violation of applicable Environmental Laws,
including, without limitation, reasonable attorney and consultant fees,
investigation and laboratory fees, court costs, and litigation expenses.
SECTION 6.15. FURTHER ASSURANCES. Execute any and all further documents,
agreements and instruments, and take all further actions, which the
Administrative Agent or the Lenders shall reasonably request in order to
effectuate the transactions contemplated by this Agreement and in order to
grant, preserve, protect and perfect the liens purported to be created hereunder
and under the Security Documents.
ARTICLE VII
NEGATIVE COVENANTS
The Company covenants and agrees with each Lender that so long as the
Revolving Credit Commitment remains in effect or any of the principal of or
interest on any Note or any other Obligations hereunder shall be unpaid, it will
not, and will not cause or permit any Corporate Guarantor, directly or
indirectly, to:
SECTION 7.01. LIENS. Incur, create, assume or suffer to exist any Lien
on any of their respective assets now or hereafter owned, other than:
(a) Liens existing on the date hereof as set forth on
Schedule II attached hereto, including any renewals or extensions thereof;
provided that no such Lien is extended to cover any additional property and that
the amount of Indebtedness secured thereby is not increased;
(b) Liens for taxes, assessments or other governmental
charges or levies not yet delinquent or which are being contested in good faith
by appropriate proceedings, provided, however, that adequate reserves with
respect thereto are maintained on the books of the Company or any of its
Subsidiaries in accordance with Generally Accepted Accounting Principles;
(c) carriers', warehousemens', mechanics', suppliers' or
other like Liens arising in the ordinary course of business and not overdue for
a period of more than 30 days or which are being contested in good faith by
appropriate proceedings in a manner which will not jeopardize or diminish in any
material respect the interest of the Administrative Agent in any of the
collateral subject to the Pledge Agreements;
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(d) Liens incurred or deposits to secure the performance of
tenders, bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety, performance and appeal bonds, and other
obligations of similar nature incurred in the ordinary course of business;
(e) any attachment, judgment or similar Lien arising in
connection with any court or governmental proceeding provided that the execution
or other enforcement of such Lien is effectively stayed;
(f) easements, rights of way, restrictions and other similar
charges or encumbrances which in the aggregate do not interfere in any material
respect with the occupation, use and enjoyment by the Company or any Corporate
Guarantor of the property or assets encumbered thereby in the normal course of
their respective business or materially impair the value of the property subject
thereto;
(g) deposits under workmen's compensation, unemployment
insurance and social security laws;
(h) purchase money liens for fixed or capital assets,
including obligations with respect to Capital Leases; provided in each case (i)
no Default or Event of Default shall have occurred and be continuing or shall
occur after giving effect to such Lien, (ii) such purchase money Lien does not
exceed 100% of the purchase price of, and encumbers only, the property acquired
and (iii) such purchase money Lien does not secure any Indebtedness other than
in respect of the purchase price of the asset acquired; and
(i) Liens granted to the Administrative Agent for the
ratable benefit of the Lenders pursuant to the Security Documents.
SECTION 7.02. INDEBTEDNESS. Incur, create, assume or suffer to exist or
otherwise become liable in respect of any Indebtedness, other than:
(a) Indebtedness incurred prior to the date hereof as
described in Schedule III attached hereto, including any renewals or extensions
thereof; provided such renewal or extension does not result in an increase in
the aggregate principal amount of such Indebtedness;
(b) Indebtedness to the Lenders, whether under this
Agreement, the Notes or any other Loan Document;
(c) Indebtedness for trade payables incurred in the ordinary
course of business; provided such payables shall be paid or discharged when due;
(d) Indebtedness consisting of guarantees permitted pursuant
to Section 7.03;
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(e) Subordinated Debt; provided, however, that no Default or
Event of Default shall have occurred and is continuing or would occur after
giving effect to the incurrence of such Subordinated Debt;
(f) Indebtedness owing by the Company to any Corporate
Guarantor or by any Corporate Guarantor to any other Corporate Guarantor;
(g) Indebtedness secured by purchase money Liens as
permitted under Section 7.01(h); provided that no Default or Event of Default
shall have occurred and be continuing or would occur after giving effect to the
incurrence of such Indebtedness; and
(h) Indebtedness owing to all or a portion of the purchase
price of an acquisition permitted pursuant to Section 7.12; provided, however,
that (i) such Indebtedness does not exceed more than 50% of the original
purchase price of such acquisition, (ii) prior to the incurrence of such
Indebtedness the Lender shall have received certificates executed by an
executive officer of the Company certifying that no default or Event of Default
has occurred and is continuing or would occur after giving effect to the
incurrence of such Indebtedness which certificate shall include calculation of
the financial covenants on a pro forma basis after giving effect to incurrence
of such Indebtedness and the consummation of such acquisition and such
Indebtedness shall be unsecured.
SECTION 7.03. GUARANTIES. Guarantee, endorse, become surety for, or
otherwise in any way become or be responsible for the Indebtedness or
obligations of any Person, whether by agreement to maintain working capital or
equity capital or otherwise maintain the net worth or solvency of any Person or
by agreement to purchase the Indebtedness of any other Person, or agreement for
the furnishing of funds, directly or indirectly, through the purchase of goods,
supplies or services for the purpose of discharging the Indebtedness of any
other Person or otherwise, or enter into or be a party to any contract for the
purchase of merchandise, materials, supplies or other property if such contract
provides that payment for such merchandise, materials, supplies or other
property shall be made regardless of whether delivery of such merchandise,
supplies or other property is ever made or tendered except:
(a) guaranties executed prior to the date hereof as
described on Schedule IV attached hereto but not including any renewals or
extension thereof;
(b) endorsements of negotiable instruments for collection or
deposit in the ordinary course of business;
(c) guaranties of any Indebtedness under this Agreement or
any other Indebtedness; and
(d) guaranties by the Company of any Indebtedness of any
Corporate Guarantor permitted pursuant to Section 7.02 (other than Indebtedness
described in Section 7.02(e)).
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(e) guaranties by any Corporate Guarantor of any
Indebtedness of the Company or any other Corporate Guarantor permitted pursuant
to Section 7.02 (other than Indebtedness described in Section 7.02(e)).
SECTION 7.04. SALE OF ASSETS. Sell, lease, assign, transfer or otherwise
dispose of any of their now owned or hereafter acquired respective properties
and assets, whether or not pursuant to an order of a federal agency or
commission, except for (a) the sale of inventory disposed of in the ordinary
course of business, and (b) the sale or other disposition of properties or
assets no longer used or useful in the conduct of their respective businesses.
SECTION 7.05. SALES OF RECEIVABLES. Sell, transfer, discount or
otherwise dispose of notes, accounts receivable or other obligations owing to
the Company or any Corporate Guarantor, with or without recourse, except for
collection in the ordinary course of business.
SECTION 7.06. LOANS AND INVESTMENTS. Make or commit to make any advance,
loan, extension of credit, or capital contribution to or purchase or hold
beneficially any stock or other securities, or evidence of Indebtedness of,
purchase or acquire all or a substantial part of the assets of, make or permit
to exist any interest whatsoever in, any other Person except (a) for the
ownership of stock of any Subsidiaries existing as of the Closing Date or
created after the Closing Date or acquired after the date hereof, provided the
Company has complied with its obligations under Section 6.13 with respect to
such Subsidiary and (b) acquisitions expressly permitted pursuant to Section
7.12, and (c) Eligible Investments.
SECTION 7.07. NATURE OF BUSINESS. Change or alter, in any material
respect, the nature of its business from the nature of the business engaged in
by it on the date hereof.
SECTION 7.08. SALE AND LEASEBACK. Enter into any arrangement, directly
or indirectly, with any Person whereby it shall sell or transfer any property,
whether real or personal, used or useful in its business, whether now owned or
hereafter acquired, of it or any Corporate Guarantor, if at the time of such
sale or disposition it intends to lease or otherwise acquire the right to use or
possess (except by purchase) such property or like property for a substantially
similar purpose.
SECTION 7.09. FEDERAL RESERVE REGULATIONS. Permit any Loan or the
proceeds of any Loan to be used for any purpose which violates or is
inconsistent with the provisions of Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
SECTION 7.10. ACCOUNTING POLICIES AND PROCEDURES. Permit any change in
the accounting policies and procedures of the Company or any Corporate
Guarantor, including a change in fiscal year, provided, however, that any policy
or procedure required to be changed by the Financial Accounting Standards Board
(or other board or committee thereof) in order to comply with Generally Accepted
Accounting Principles may be so changed.
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SECTION 7.11. HAZARDOUS MATERIALS. Cause or permit any of its properties
or assets to be used to generate, manufacture, refine, transport, treat, store,
handle, dispose of, transfer, produce or process Hazardous Materials, except in
compliance with all applicable federal, state and local laws or regulations, or
cause or permit, as a result of any intentional or negligent act or omission on
the part of the Company or any Corporate Guarantor, a release of Hazardous
Materials onto such property or asset or onto any other property.
SECTION 7.12. LIMITATIONS ON FUNDAMENTAL CHANGES, LIMITATIONS ON
CONSIDERATION. Merge or consolidate with, or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now or hereafter acquired) to, any
Person, or, acquire all of the stock or all or substantially all of the assets
or the business of any Person or liquidate, wind up or dissolve or suffer any
liquidation or dissolution provided, however, the Company or any Corporate
Guarantor may acquire the business or all or substantially all of the assets of
any Person provided that (i) no default or Event of Default shall have occurred
and be continuing or would occur after giving effect to the proposed acquisition
and (ii) the aggregate purchase price of all such acquisitions in any fiscal
year shall not exceed $250,000 in the aggregate, calculated inclusive of the
value of any common stock of the Company or any Corporate Guarantor issued to
the Seller in such acquisition, and (iii) in the event of acquisition of stock
of a Person, the Board of Directors of such Person has recommended the sale by
its shareholder to the Company or the Corporate Guarantor as the case may be.
SECTION 7.13. FINANCIAL COVENANTS.
(a) MINIMUM CONSOLIDATED EBITDA. Permit Consolidated EBITDA to be
less than $7,000,000.
(b) CONSOLIDATED FIXED CHARGE RATIO. Permit the Consolidated Fixed
Charge Ratio to be less 1.35:1.00.
(c) CONSOLIDATED INTEREST COVERAGE RATIO. Permit at any time
Consolidated Interest Coverage Ratio to be less than 4.50:1.00.
(d) CONSOLIDATED TANGIBLE NET WORTH PLUS SUBORDINATED DEBT. Permit
Consolidated Tangible Net Worth plus Subordinated Debt, as of the last day of
any fiscal quarter, to be less than the amount set forth below opposite the
relevant fiscal quarter:
Fiscal Quarter Ending Amount
--------------------- ------
June 30, 1999 $11,150,000
September 30, 1999 $11,150,000
December 31, 1999 $11,350,000
March 31, 2000 $11,350,000
June 30, 2000 $11,350,000
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September 30, 2000 $11,350,000
December 31, 2000 $11,600,000
March 31, 2001 $11,600,000
June 30, 2001 $11,600,000
September 30, 2001 $11,600,000
December 31, 2001 and $11,850,000
each fiscal year thereafter
(e) CONSOLIDATED NET LOSS. Suffer a consolidated net loss
(calculated exclusive of extraordinary gains but inclusive of extraordinary
losses) for any two consecutive fiscal quarters in any fiscal year of Company.
(f) CONSOLIDATED LEVERAGE RATIO. Permit at any time the Consolidated
Leverage Ratio to exceed 2.15:1.00.
SECTION 7.14. SUBORDINATED DEBT. Directly or indirectly prepay, defease,
purchase, redeem, or otherwise acquire any Subordinated Debt, except as provided
in the Subordination Agreement or amend, supplement or otherwise modify any of
the terms thereof without the prior written consent of the Required Lenders.
SECTION 7.15. DIVIDENDS. Declare any dividend on, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition of, any shares
of any class of stock of the Company or any Corporate Guarantor, or warrant to
purchase any class of stock of the Company or any Corporate Guarantor, whether
now or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash, securities or property or in
obligations of the Company or any Corporate Guarantor or in any combination
thereof, or permit any Subsidiary to make any payment on account of, or purchase
or otherwise acquire, any shares of any class of the stock of the Company or any
Corporate Guarantor or any warrant to purchase any class of stock of the Company
or any Corporate Guarantor from any Person.
SECTION 7.16. TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of the Company's or any Corporate
Guarantor's business and upon fair and reasonable terms no less favorable to the
Company or such Corporate Guarantor than they would obtain in a comparable
arms-length transaction with a Person not an Affiliate.
SECTION 7.17. IMPAIRMENT OF SECURITY INTEREST. Take or omit to take any
action which could reasonably be expected to have the result of impairing the
security interest in any property subject to a security interest in favor of the
Administrative Agent or the Lenders or grant to any person any interest
whatsoever in any property which is subject to a security interest in favor of
the Administrative Agent for the ratable benefit of the Lenders.
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ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. EVENTS OF DEFAULT. In the case of the happening of any of
the following events (each an "Event of Default"):
(a) failure to pay the principal of or interest on any Loan,
or any fees under this Agreement as and when due and payable, and with
respect to interest payments and fee payments only, such failure shall
continue unremedied for a period of three Business Days;
(b) default shall be made in (i) the due observance or
performance of any covenant, condition or agreement of the Company or
any Corporate Guarantor to be performed pursuant to Section 6.01 of this
Agreement and such failure shall continue unremedied for a period of ten
(10) days, or (ii) the due observance or performance of any other
covenant, condition or agreement of the Company or any Corporate
Guarantor to be performed pursuant to this Agreement or any other Loan
Document (other than those specified in clause (a) of this Section
8.01);
(c) any representation or warranty made or deemed made in
this Agreement or any other Loan Document shall prove to be false or
misleading in any material respect when made or given or when deemed
made or given;
(d) any report, certificate, financial statement or other
instrument furnished in connection with this Agreement or any other Loan
Document or the borrowings hereunder, shall prove to be false or
misleading in any material respect when made or given or when deemed
made or given;
(e) default in the performance or compliance in respect of
any agreement or condition relating to any Indebtedness of the Company
or any Corporate Guarantor in excess of $50,000 individually or in the
aggregate (other than the Notes), if the effect of such default is to
accelerate the maturity of such Indebtedness or to permit the holder or
obligee thereof (or a trustee on behalf of such holder or obligee) to
cause such Indebtedness to become due prior to the stated maturity
thereof, or, any such Indebtedness shall not be paid when due;
(f) the Company or any Guarantor shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code or any other federal or state bankruptcy,
insolvency or similar law, (ii) consent to the institution of, or fail
to controvert in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (iii) apply for or consent to the
employment of a receiver, trustee, custodian, sequestrator or similar
official for the Company or any Guarantor or for a substantial part of
its property; (iv) file an answer admitting the material allegations of
a petition filed against it
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in such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) take corporate action for the purpose of effecting any
of the foregoing, or (vii) become unable or admit in writing its
inability or fail generally to pay its debts as they become due;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of the Company or any Guarantor or of a
substantial part of their respective property, under Title 11 of the
United States Code or any other federal or state bankruptcy insolvency
or similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for the Company or any Guarantor or for
a substantial part of their property, or (iii) the winding-up or
liquidation of the Company or any Guarantor and such proceeding or
petition shall continue undismissed for 30 days or an order or decree
approving or ordering any of the foregoing shall continue unstayed and
in effect for 30 days;
(h) One or more orders, judgments or decrees for the payment
of money in excess of $50,000 in the aggregate shall be rendered against
the Company or any Corporate Guarantor and the same shall not have been
paid in accordance with such judgment, order or decree or settlement and
either (i) an enforcement proceeding shall have been commenced by any
creditor upon such judgment, order or decree, or (ii) there shall have
been a period of thirty (30) days during which a stay of enforcement of
such judgment, order or decree, by reason of pending appeal or
otherwise, was not in effect;
(i) any Plan shall fail to maintain the minimum funding
standard required for any Plan year or part thereof or a waiver of such
standard or extension of any amortization period is applied for or
granted under Section 412 of the Code, any Plan is terminated by the
Company or any ERISA Affiliate or the subject of termination proceedings
under ERISA, any Plan shall have an Unfunded Current Liability, a
Reportable Event shall have occurred with respect to a Plan or the
Company, any Corporate Guarantor, or any ERISA Affiliate shall have
incurred a liability to or on account of a Plan under Section 515, 4062,
4063, 4201 or 4204 of ERISA, and there shall result from any such event
or events the imposition of a lien upon the assets of the Company or any
Corporate Guarantor, the granting of a security interest on such assets,
or a liability to the PBGC or a Plan or a trustee appointed under ERISA
or a penalty under Section 4971 of the Code;
(j) any material provision of any Loan Document shall for
any reason cease to be in full force and effect in accordance with its
terms or the Company or any Corporate Guarantor shall so assert in
writing;
(k) Kevin O'Kane and Hugh O'Kane, Jr. shall cease to own
beneficially and of record at least 51% of the voting capital stock the
Company and each Corporate Guarantor which is not a wholly owned
subsidiary of the Company or another Corporate Guarantor;
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(l) any of the Liens purported to be granted pursuant to any
Security Document shall fail or cease for any reason to be legal, valid
and enforceable liens on the collateral purported to be covered thereby
or shall fail or cease to have the priority purported to be created
thereby; or
(m) any Guarantor shall fail to perform or observe any term
or provision of such Guarantor's Guaranty or any representation or
warranty made by any Guarantor in connection with such Guarantor's
Guaranty shall prove to have been incorrect in any material respect when
made or deemed made,
then, at any time thereafter during the continuance of any such event, the
Administrative Agent may, and, upon the request of the Required Lenders, shall,
by written or telephonic notice to the Company, take either or both of the
following actions, at the same or different times, (a) terminate the Revolving
Credit Commitment and (b) declare (i) the Notes, both as to principal and
interest and (ii) all other Obligations, to be forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Notes to the
contrary notwithstanding; provided, however, that if an event specified in
Section 8.01(f) or (g) shall have occurred, the Revolving Credit Commitment
shall automatically terminate and interest, principal and amounts referred to in
the preceding clauses (i), (ii), and (iii) shall be immediately due and payable
without presentment, demand, protest, or other notice of any kind, all of which
are expressly waived, anything contained herein or in the Notes to the contrary
notwithstanding.
ARTICLE IX
THE ADMINISTRATIVE AGENT
SECTION 9.01. APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder, under the Security Documents and the other Loan Documents with such
powers as are specifically delegated to the Administrative Agent by the terms of
this Agreement, the Security Documents and the other Loan Documents together
with such other powers as are reasonably incidental thereto. The Administrative
Agent shall have no duties or responsibilities except those expressly set forth
in this Agreement, the Security Documents and the other Loan Documents and shall
not be a trustee for any Lender, nor is the Administrative Agent acting in a
fiduciary capacity of any kind under this Agreement, the Security Documents or
the other Loan Documents or in respect thereof or in respect of any Lender. The
Administrative Agent shall be not responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement, the
Security Documents, or the other Loan Documents, in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement, the Security Documents or the other Loan Documents, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, the Security Documents or the other Loan Documents or any other
document referred to or provided for herein or therein or for the collectibility
of the Loans or for the validity, effectiveness or value of any interest or
security covered by the Security Documents or for the value of any collateral or
for the validity or effectiveness of any assignment, mortgage, pledge, security
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agreement, financing statement, document or instrument, or for the filing,
recording, re-filing, continuing or re-recording of any thereof or for any
failure by the Company or any Corporate Guarantor to perform any of its
obligations hereunder or under the other Loan Documents. The Administrative
Agent may take all actions by itself and/or it may employ agents and
attorneys-in-fact, and shall not be responsible, except as to money or the
securities received by it or its authorized agents, for the negligence or
misconduct of itself or its employees or of any such agents or
attorneys-in-fact, if such agents or attorneys-in-fact are selected by it with
reasonable care. No Administrative Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder, under the Security Documents or the
other Loan Documents or in connection herewith or therewith, except for its or
their own gross negligence or willful misconduct.
SECTION 9.02. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Administrative Agent. As to any matters not
expressly provided for by this Agreement, the Security Documents or the other
Loan Documents, the Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder, under the Security Documents
or the other Loan Documents in accordance with instructions signed by the
Required Lenders, or such other number of Lenders as is specified in Section
10.04 hereof, and such instructions of the Required Lenders or other number of
Lenders as aforesaid and any action taken or failure to act pursuant thereto
shall be binding on all of the Lenders.
SECTION 9.03. EVENTS OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge of the occurrence of a Default or Event of Default
(other than the non-payment of principal of or interest on the Loans to the
extent the same is required to be paid to the Administrative Agent for the
account of the Lenders) unless the Administrative Agent has received notice from
a Lender or the Company specifying such Default or Event of Default and stating
that such notice is a "Notice of Default". In the event that the Administrative
Agent receives such a notice of the occurrence of a Default, the Administrative
Agent shall give prompt notice thereof to the Lenders. The Administrative Agent
shall (subject to Section 9.07 hereof) take such action with respect to such
Default as shall be directed by the Required Lenders, except as otherwise
provided in Section 10.04 hereof; provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but is not obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders.
SECTION 9.04. RIGHTS AS A LENDER. With respect to its Revolving Credit
Commitment and the Loans made by it, the Administrative Agent in its capacity as
a Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders"
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shall, unless the context otherwise indicates, include the entity which is the
Administrative Agent in its individual capacity. The entity which is the
Administrative Agent and its Affiliates may (without having to account therefor
to any Lender) accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Company or its Affiliates, as
if it were not acting as the Administrative Agent, and, except to the extent
otherwise herein specifically set forth, the entity which is the Administrative
Agent may accept fees and other consideration from the Company or its
Affiliates, for services in connection with this Agreement, the Security
Documents or any of the other Loan Documents or otherwise without having to
account for the same to the Lenders.
SECTION 9.05. INDEMNIFICATION. The Lenders shall indemnify the
Administrative Agent (to the extent not reimbursed by the Company under Section
10.03 hereof), ratably in accordance with the aggregate outstanding principal
amount of the Loans made by the Lenders (or, if no Loans are at the time
outstanding, ratably in accordance with their respective Revolving Credit
Commitments), for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent in its capacity as the Administrative Agent in
any way relating to or arising out of this Agreement, the Security Documents or
any of the other Loan Documents or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby and
thereby (including, without limitation, the costs and expenses which the Company
is obligated to pay under Section 10.03 hereof or under the applicable
provisions of any other Loan Document) or the enforcement of any of the terms
hereof or of the Security Documents, or of any other Loan Document, provided
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Administrative Agent.
SECTION 9.06. NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
Each Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement, the Security Documents or the other Loan
Documents. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by the Company of this Agreement,
the Security Documents or the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the properties or
books of the Company. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by the
Administrative Agent hereunder or under the Security Documents, or the other
Loan Documents, the Administrative Agent shall not have any duty or ability to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Company, which may come into the
possession of the Administrative Agent or any of its Affiliates.
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SECTION 9.07. FAILURE TO ACT. Except for action expressly required of
the Administrative Agent hereunder or under the Security Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder or thereunder unless it shall be indemnified to its
satisfaction by the Lenders against any and all liability (except gross
negligence and willful misconduct) and expense which may be incurred by it by
reason of taking or continuing to take any such action.
SECTION 9.08. RESIGNATION OF THE ADMINISTRATIVE AGENT. Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this Section 9.08, the Administrative Agent may resign at any time by notifying
the Lenders and the Company. Upon any such resignation, the Required Lenders
shall have the right, in consultation with the Company to appoint a successor to
the Administrative Agent. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the resigning Administrative Agent gives notice of its resignation, then the
resigning Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank with an office in New York, New York.
Upon the acceptance of its appointment as Administrative Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the resigning Administrative Agent, and
the resigning Administrative Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Company to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Company and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 10.03 shall continue in effect for the benefit of such resigning
Administrative Agent in respect of any actions taken or omitted to be taken by
it while it was acting as the Administrative Agent.
SECTION 9.09. SHARING OF COLLATERAL AND PAYMENTS. In the event that at
any time any Lender shall obtain payment in respect of a Note or interest
thereon, or receive any collateral in respect thereof, whether voluntarily or
involuntarily, through the exercise of a right of banker's lien, set-off or
counterclaim against the Company or otherwise, in a greater proportion than the
proportion received by any other Lender in respect of the corresponding Note
held by it or interest thereon, then the Lender so receiving such greater
proportionate payment shall purchase for cash from the other Lender or Lenders
such portion of each such other Lender's or Lenders' Loan, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause the Lender receiving the proportionate
over-payment to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders each of which shall have a lien on its
ratable portion of the amount described hereafter obtained from the Company;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from the Lender which received the proportionate
over-payment, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Company agrees, to the extent it may do so under applicable law, that each
Lender so purchasing a portion of another Lender's Loan may exercise all rights
of payment (including, without limitation, rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such portion.
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<PAGE> 47
ARTICLE X
MISCELLANEOUS
SECTION 10.01. NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including
telecopy), and unless otherwise expressly provided herein, shall be conclusively
deemed to have been received by a party hereto and to be effective on the day on
which delivered by hand to such party or one Business Day after being sent by
overnight mail to the address set forth below, or, in the case of telecopy
notice, when acknowledged as received, or if sent by registered or certified
mail, three (3) Business Days after the day on which mailed in the United
States, addressed to such party at such address:
(a) if to the Agent, at
European American Bank
335 Madison Avenue
New York, New York 10017
Attention: Relationship Manager
National Network Technologies, Inc.
Telecopy: (212) 370-8524
(b) if to the Company, at
National Network Technologies, Inc.
88 White Street
New York, New York 10013
Attention: Mr. Hugh O'Kane, Jr.
Telecopy: (212) 845-4083
(c) if to any Lender, to its address set forth in the
signature page of this Agreement and to the person so
designated
- and -
(d) as to each such party at such other address as such
party shall have designated to the other in a written
notice complying as to delivery with the provisions of
this Section 10.01.
SECTION 10.02. EFFECTIVENESS; SURVIVAL. This Agreement shall become
effective on the date on which all parties hereto shall have signed a
counterpart copy hereof and shall have delivered the same to the Administrative
Agent. All representations and warranties made herein and in the other Loan
Documents and in the certificates delivered pursuant hereto or thereto shall
survive the making by the Lenders of the Loans as herein contemplated and the
execution and delivery to the Lenders of the Notes evidencing the Loans and
shall continue in full force and effect so long as the
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<PAGE> 48
Obligations hereunder are outstanding and unpaid and the Revolving Credit
Commitments are in effect. The obligations of the Company pursuant to Section
3.05, Section 3.06, Section 3.07 and Section 10.03 shall survive termination of
this Agreement and payment of the Obligations.
SECTION 10.03. EXPENSES. The Company agrees (a) to indemnify, defend and
hold harmless the Administrative Agent and each Lender and their respective
officers, directors, employees, and affiliates (each, an "indemnified person")
from and against any and all losses, claims, damages, liabilities or judgments
to which any such indemnified person may be subject and arising out of or in
connection with the Loan Documents, the financings contemplated hereby, the use
of any proceeds of such financings or any related transaction or any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any of such indemnified persons is a party thereto, and to
reimburse each of such indemnified persons upon demand for any reasonable, legal
or other expenses incurred in connection with the investigation or defending any
of the foregoing; provided that the foregoing indemnity will not, as to any
indemnified person, apply to losses, claims, damages, liabilities, judgments or
related expenses to the extent arising from the wilful misconduct or gross
negligence of such indemnified person, (b) to pay or reimburse the
Administrative Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the preparation and execution of and any amendment,
supplement or modification to this Agreement, the Notes any other Loan
Documents, and any other documents prepared in connection herewith or therewith,
and the consummation of the transactions contemplated hereby and thereby,
including without limitation, the reasonable fees and disbursements of Farrell
Fritz, P.C., counsel to the Administrative Agent and Lamb and Barnosky, LLP,
special counsel to SBLI (provided that such fees and expenses of Lamb and
Barnosky, LLP are not in excess of $3,500), (c) to pay or reimburse each Lender
and the Administrative Agent for all their costs and expenses incurred in
connection with the enforcement and preservation of any rights under this
Agreement, the Notes, the other Loan Documents, and any other documents prepared
in connection herewith or therewith, including, without limitation, the
reasonable fees and disbursements of counsel (including, without limitation,
in-house counsel) to the Administrative Agent and to the several Lenders,
including all such out-of-pocket expenses incurred during any work-out,
restructuring or negotiations in respect of the Obligations and (d) to pay or
reimburse the Administrative Agent on demand for all costs, expenses and charges
incurred by the Administrative Agent in connection with conducting an inspection
or audit in accordance with Section 6.04, provided that such reimbursement shall
not exceed $10,000 per audit.
SECTION 10.04. AMENDMENTS AND WAIVERS. With the written consent of the
Required Lenders, the Administrative Agent and the Company may, from time to
time, enter into written amendments, supplements or modifications hereto for the
purpose of adding any provisions to this Agreement or the Notes or any of the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Company hereunder or thereunder, and with the written consent of the
Required Lenders the Administrative Agent on behalf of the Lenders may execute
and deliver to the Company a written instrument waiving, on such terms and
conditions as the Administrative Agent or the Required Lenders may specify in
such instrument, any of the requirements of this Agreement or the Notes or any
of the other Loan Documents or any Event of Default; provided, however, that no
such waiver and no such amendment, or supplement or modification shall (a)
extend the maturity
43
<PAGE> 49
of any Note, or any installment thereof, (b) reduce the rate or extend the time
of payment of interest on any Note or any fees payable to the Lenders hereunder,
(c) reduce the principal amount of any Note, (d) except as provided in 2.01(f),
increase the Total Revolving Credit Commitment, (e) amend, modify or waive any
provision of this Section 10.04, (f) reduce the percentage specified in the
definition of Required Lenders or amend or modify any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination granting consent
hereunder, (g) consent to the assignment or transfer by the Company or any
Corporate Guarantor of any of its rights or obligations under this Agreement,
(h) except as expressly permitted pursuant to this Agreement or any other Loan
Document release any collateral security granted to the Administrative Agent
under the Security Documents or (i) release any Guarantor from its Guaranty, or
limit any Guarantor's liability with respect to its Guaranty, in each case
specified in clauses (a) through (i) above without the written consent of all
the Lenders; and provided, further, that no such waiver and no such amendment,
supplement or modification shall (i) amend, modify, supplement or waive any
provision of Article IX with respect to the Administrative Agent without the
written consent of the Administrative Agent or (ii) increase the amount of any
Lender's Revolving Credit Commitment without the written consent of such Lender.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Company, the
Lenders, the Administrative Agent and all future holders of the Notes.
SECTION 10.05. SUCCESSORS AND ASSIGNS; PARTICIPATIONS. (a) This
Agreement shall be binding upon and inure to the benefit of the Company, the
Lenders, the Administrative Agent, all future holders of the Notes and their
respective successors and assigns, except that the Company may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other financial institutions ("Participants") participating interests
in any Loan owing to such Lender, any Note held by such Lender, any Revolving
Credit Commitment of such Lender or any other interest of such Lender hereunder.
In the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under this Agreement to the other parties
under this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Note for all purposes under this Agreement, and the Company and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement.
The Company agrees that each Participant shall be entitled to the benefits of
Sections 3.05, 3.06 and 3.07 with respect to its participation in the Revolving
Credit Commitments and in the Loans outstanding from time to time; provided,
however, that no Participant shall be entitled to receive any greater amount
pursuant to such sections than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor Lender to such Participant had no such transfer occurred. No
Participant shall have the right to consent to any amendment to, or waiver of,
any provision of this Agreement, except the transferor Lender may provide in its
agreement with the
44
<PAGE> 50
Participant that such Lender will not, without the consent of the Participant,
agree to any amendment or waiver described in clause (a) through clause (j) of
Section 10.04.
(c) Subject to the last sentence of this paragraph (c) any Lender
may, in the ordinary course of its commercial banking business and in accordance
with applicable law, at any time sell to any Lender or any domestic banking
affiliate thereof, and to one or more additional banks or financial institutions
provided that such Purchasing Lender is a bank organized under the laws of the
United States of America or any state thereof and which has combined capital and
surplus of at least $200,000,000 ("Purchasing Lenders") all or any part of its
rights and obligations under this Agreement and the Notes pursuant to an
Assignment and Acceptance Agreement, executed by such Purchasing Lender, such
transferor Lender and the Administrative Agent (and, in the case of an
Assignment and Acceptance Agreement relating to a Purchasing Lender that is not
then a Lender or a domestic banking affiliate thereof, also executed by the
Company), and delivered to the Administrative Agent for its acceptance. Upon
such execution, delivery and acceptance from and after the effective date
specified in such Assignment and Acceptance Agreement, (i) the Purchasing Lender
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance Agreement, have the rights and obligations of a Lender
hereunder with Revolving Credit Commitments as set forth therein and (ii) the
transferor Lender thereunder shall, to the extent provided in such Assignment
and Acceptance Agreement, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance Agreement covering all or the
remaining portion of a transferor Lender's rights and obligations under this
Agreement, such transferor Lender shall cease to be a party hereto except as to
Sections 3.05, 3.06, 3.07 and 10.03 for the period prior to the effective date).
Such Assignment and Acceptance Agreement shall be deemed to amend this Agreement
to the extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of Commitment Proportions arising
from the purchase by such Purchasing Lender of all or a portion of the rights
and obligations of such transferor Lender under or in respect of this Agreement
and the Notes. On or prior to the effective date specified in such Assignment
and Acceptance Agreement, the Company, at its own expense, shall execute and
deliver to the Administrative Agent, in exchange for the surrendered Notes, new
Notes to the order of such Purchasing Lender in an amount equal to the Revolving
Credit Commitments assumed by it pursuant to such Assignment and Acceptance
Agreement and, if the transferor Lender has retained any Revolving Credit
Commitment hereunder, a new Note to the order of the transferor Lender in an
amount equal to such Revolving Credit Commitment retained by it hereunder. Such
new Notes shall be in a principal amount equal to the principal amount of such
surrendered Notes, shall be dated the date of the Notes they replace and shall
otherwise be in the form of the Notes replaced thereby. The Notes surrendered by
the transferor Lender shall be returned by the Administrative Agent to the
Company marked "cancelled". Anything in this Section 10.05 to the contrary
notwithstanding, (i) no transfer to a Purchasing Lender shall be made pursuant
to this paragraph (c) if such transfer by any one transferor Lender to any one
Purchasing Lender (other than a Purchasing Lender which is a Lender hereunder
prior to such transfer) (x) is in respect of less than $1,000,000 of the
Revolving Credit Commitments of such transferor Lender or (y) if less than all
of the Revolving Credit Commitment of such transferor Lender is transferred,
after giving effect to such transfer the amount held by any Transferor Lender
would be less than $1,000,000 and (ii) each transfer to a
45
<PAGE> 51
Purchasing Lender shall be made in the same pro-rata portion with respect to the
Revolving Credit Commitments.
(d) The Administrative Agent shall maintain at its address referred
to in Section 10.01 a copy of each Assignment and Acceptance Agreement delivered
to it and a register (the "Register") for the recordation of the names and
addresses of the Lenders and the commitments of, and principal amount of the
Loans owing to, each Lender from time to time. The entries in the Register shall
be conclusive, in the absence of clear and obvious error and the Company, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as the owner of the Loans recorded therein for all
purposes of this Agreement. The Register shall be available for inspection by
the Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance Agreement
executed by a transferor Lender and a Purchasing Lender (and, in the case of a
Purchasing Lender that is not then a Lender or an Affiliate thereof, by the
Company) together with payment by the Purchasing Lender to the Administrative
Agent of a registration and processing fee of $3,500 if the Purchasing Lender is
not a Lender prior to the execution of an Assignment and Acceptance Agreement
and $2,500 if the Purchasing Lender is a Lender prior to the execution of an
Assignment and Acceptance Agreement, the Administrative Agent shall (i) accept
such Assignment and Acceptance Agreement, (ii) record the information contained
therein in the Register, and (iii) give prompt notice of such acceptance and
recordation to the Lenders and the Company.
(f) The Company authorizes each Lender to disclose to any
Participant or Purchasing Lender (each, a "Transferee") and any prospective
Transferee any and all financial information in such Lender's possession
concerning the Company and its Affiliates which has been delivered to such
Lender by or on behalf of the Company pursuant to this Agreement or which has
been delivered to such Lender by the Company in connection with such Lender's
credit evaluation of the Company and Corporate Guarantor prior to entering into
this Agreement.
(g) If, pursuant to this Section 10.05, any interest in this
Agreement, a participation agreement, or any Note is transferred to any
transferee which is organized under the laws of any jurisdiction other than the
United States or any State thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer, (i) to
represent to the transferor Lender (for the benefit of the transferor Lender,
the Administrative Agent and the Company) that under applicable law and treaties
no taxes will be required to be withheld by the Administrative Agent, the
Company, or the transferor Lender with respect to any payments to be made to
such Transferee in respect of the Loans, (ii) to furnish to the Administrative
Agent, the transferor Lender and the Company either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such
Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the Administrative Agent, the transferor Lender and the Company) to
provide the Administrative Agent, the transferor Lender and the Company a new
Form 4224 or Form 1001 upon the expiration or
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<PAGE> 52
obsolescence of any previously delivered form and comparable statements in
accordance with applicable U.S. laws and regulations and amendments duly
executed and completed by such Transferee, and to comply from time to time with
all applicable U.S. laws and regulations with regard to such withholding tax
exemption.
(h) Any Lender may at any time pledge or assign or grant a security
interest in all or any part of its rights under this Agreement and its Notes to
a Federal Reserve Bank, provided that no such assignment shall release the
transferor Lender from its Revolving Credit Commitments or its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
to this Agreement.
SECTION 10.06. NO WAIVER; CUMULATIVE REMEDIES. Neither any failure nor
any delay on the part of any Lender or the Administrative Agent in exercising
any right, power or privilege hereunder or under any Note or any other Loan
Document shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any other right,
power or privilege. The rights, remedies, powers and privileges herein provided
or provided in the other Loan Documents are cumulative and not exclusive of any
rights, remedies powers and privileges provided by law.
SECTION 10.07. APPLICABLE LAW. THIS AGREEMENT AND THE NOTES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW.
SECTION 10.08. SUBMISSION TO JURISDICTION; JURY WAIVER. THE COMPANY
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN
THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU OR COUNTY OF SUFFOLK
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, AND TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY
CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH FEDERAL OR
STATE COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR THEREIN OR THE SUBJECT MATTER HEREOF THEREOF MAY NOT BE
LITIGATED IN OR BY SUCH FEDERAL OR STATE COURTS. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY AGREES NOT TO (i) SEEK AND HEREBY WAIVES THE RIGHT
TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH
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<PAGE> 53
FEDERAL OR STATE COURT BY ANY FEDERAL OR STATE COURT OF ANY OTHER NATION OR
JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT
OR (ii) ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE
COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR
REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY
METHOD AUTHORIZED BY THE LAWS OF NEW YORK. EACH PARTY HERETO WAIVES ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY
OTHER LOAN DOCUMENT.
SECTION 10.09. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement, any Note or any other Loan Document should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby.
SECTION 10.10 RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, the Administrative Agent, each Lender and each
Affiliate of each Lender are each hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Administrative Agent, any
Lender or any Affiliate of any Lender to or for the credit or the account of the
Company against any and all of the Obligations of the Company now and hereafter
existing under this Agreement and the Notes held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement or
any Note and although such obligations may be unmatured. The rights of the
Administrative Agent, each Lender and each Affiliate of each Lender under this
Section 10.10 are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which they may have.
SECTION 10.11. HEADINGS. Section headings used herein are for
convenience of reference only and are not to affect the construction of or be
taken into consideration in interpreting this Agreement.
SECTION 10.12. CONSTRUCTION. This Agreement is the result of
negotiations between, and has been reviewed by, each of the Company, the
Administrative Agent, the Lenders and their respective counsel. Accordingly,
this Agreement shall be deemed to be the product of each party hereto, and no
ambiguity shall be construed in favor of or against either the Company, the
Administrative Agent, or any Lender.
SECTION 10.13. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
taken together, shall constitute one and the same agreement.
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<PAGE> 54
IN WITNESS WHEREOF, the Company, the Administrative Agent and the
Lenders have caused this Agreement to be duly executed by their duly authorized
officers, as of the day and year first above written.
NATIONAL NETWORK TECHNOLOGIES, INC.
By:/s/ JONATHAN H. STERN
--------------------------------------------
Name: Jonathan H. Stern
Title: Chief Financial Officer
EUROPEAN AMERICAN BANK
AS ADMINISTRATIVE AGENT AND AS A LENDER
By: /s/ BENJAMIN J. NOBET
--------------------------------------------
Name: Benjamin J. Nobet
Title: Vice President
Lending Office:
335 Madison Avenue
New York, New York 10017
Telecopy: (212) 370-8524
Address for Notices:
335 Madison Avenue
New York, New York 10017
Telecopy: (212) 370-8524
49
<PAGE> 55
STATE BANK OF LONG ISLAND,
AS A LENDER
By: /s/ MICHAEL P. SABALA
--------------------------------------------
Name: Michael P. Sabala
Title: Vice President
Lending Office:
State Bank of Long Island
Two Jericho Plaza
Jericho, NY 11753
Telecopy: (516) 465-0562
Address for Notices:
State Bank of Long Island
Two Jericho Plaza
Jericho, NY 11753
Attention: Mr. Michael Sabala
Telecopy: (516) 465-0562
with a copy to:
State Bank of Long Island
699 Hillside Avenue
New Hyde Park, NY 11040
Attention: Mr. Michael Sabala
Telecopy: (516) 437-1032
50
<PAGE> 56
AMENDMENT dated as of November __, 1999 (this
"Amendment") to the Credit Agreement dated as of June
29, 1999, as amended (the "Credit Agreement") by and
among LEXENT INC. (formerly known as National Network
Technologies, Inc.), a Delaware corporation (the
"Company"), EUROPEAN AMERICAN BANK, a New York banking
corporation ("EAB"), as Administrative Agent and the
Lenders Party Thereto.
WHEREAS, the Company has requested and the Administrative Agent and the Lenders
have agreed, subject to the terms and conditions of this Amendment, to amend
Schedule III to the Credit Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
1. The Company has advised the Administrative Agent and the Lenders that it
has changed its name to Lexent Inc. Notwithstanding anything to the contrary
herein, in the Credit Agreement or any Loan Document, all references to the
terms "National Network Technologies, Inc." and "Company" in the Credit
Agreement and the Loan Documents shall be deemed references to Lexent Inc.
2. AMENDMENT. Schedule III to the Credit Agreement shall be amended and
restated and replaced with Schedule III attached to this Amendment.
3. MISCELLANEOUS.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Credit Agreement.
Except as expressly amended hereby, the Credit Agreement shall remain in full
force and effect in accordance with the original terms thereof.
The amendments herein contained are limited specifically to the matters set
forth above and do not constitute directly or by implication an amendment or
waiver of any other provision of Credit Agreement or any default which may occur
or may have occurred under the Credit Agreement.
The Company hereby represents and warrants that (a) after giving effect to this
Amendment, the representations and warranties by the Company and each Corporate
Guarantor pursuant to the Credit Agreement and the Loan Documents to which each
is a party are true and correct in all material respects as of the date hereof
with the same effect as those such representations and warranties have been made
on and as of such date, unless such representation is as of a specific date, in
which case, as of such date, (b) after giving effect to this Amendment, no
Default or Event of Default has occurred and is continuing.
This Amendment may be executed in one or more counterparts, each of which shall
constitute an original, but all of which when taken together shall constitute
but one Amendment. This Amendment shall become
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<PAGE> 57
effective when duly executed counterparts hereof which, when taken together,
bear the signatures of each of the parties hereto shall have been delivered to
the Administrative Agent.
This Amendment shall constitute a Loan Document.
IN WITNESS WHEREOF, the Company and the Administrative Agent, as authorized on
behalf of the Required Lenders, have caused this Amendment to be duly executed
by their duly authorized officers, all as of the day and year first above
written.
LEXENT INC. (formerly known as National Network
Technologies, Inc.)
By: /s/ JONATHAN H. STERN
----------------------
Name: Jonathan H. Stern
Title: Executive Vice President, CFO
EUROPEAN AMERICAN BANK, as Administrative Agent
By: /s/ ANDREW CUNNINGHAM
----------------------
Name: Andrew Cunningham
Title: Vice President
The undersigned, not as parties to the Credit Agreement, but as Guarantors under
the Guarantees, each dated as of June 29, 1999, do hereby accept and agree to
the terms of this Amendment and Waiver and further acknowledge that their
respective Guaranty is in full force and effect with respect to such Guarantor.
NATIONAL NETWORK TECHNOLOGIES, LLC
By: /s/ JONATHAN H. STERN
----------------------
Title: Executive Vice President, CFO
HUGH O'KANE ELECTRIC CO. LLC
By: /s/ JONATHAN H. STERN
----------------------
Title: Executive Vice President, CFO
/s/ HUGH J. O'KANE, JR.
-----------------------
Hugh O'Kane, Jr.
/s/ KEVIN M. O'KANE
-------------------
Kevin O'Kane
2
<PAGE> 58
Schedule III
(Ref: Sec. 7.02)
Existing Indebtedness
Amended and Restated Promissory Note issued July 23, 1998, subordinated,
payable to Denis J. O'Kane. Principal amount outstanding as of May 31, 1999
(excluding unpaid accrued interest): $7,516,695.
Amended and Restated Promissory Note issued July 23, 1998, subordinated,
payable to Kevin M. O'Kane. Principal amount outstanding as of May 31, 1999
(excluding unpaid accrued interest): $227,654.
Amended and Restated Promissory Note issued July 23, 1998, subordinated,
payable to Hugh J. O'Kane. Principal amount outstanding as of May 31, 1999
(excluding unpaid accrued interest): $161,922.
Notes payable pursuant to financing arrangements on vehicles and
equipment in the aggregate amount of $789,000 as disclosed in Note 7 to the
Company's Consolidated Financial Statements as of December 31, 1998.
Additional notes payable pursuant to financing arrangements on vehicles
and equipment in the aggregate amount of $373,000 incurred subsequent to
December 31, 1998 through May 31, 1999.
Indebtedness payable to Lease Plan U.S.A. Inc. pursuant to financing
arrangements on vehicles, in the aggregate amount of $519,500.
3
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED PROMISSORY NOTE
$8,703,542.37 July 23, 1998
FOR VALUE RECEIVED, NATIONAL NETWORK TECHNOLOGIES INC. (successor by
merger to Hugh O'Kane Electric Co. Inc.), a Delaware corporation ("Maker"),
having an office at 88 White Street, New York, New York 10013, promises to pay
to the order of DENIS J. O'KANE ("Payee"), having an address at 201 Sunset Road,
Oyster Bay, New York, 11771, EIGHT MILLION SEVEN HUNDRED THREE THOUSAND FIVE
HUNDRED FORTY-TWO AND 37/100 DOLLARS ($8,703,542.37) with interest on the unpaid
balance hereof from the date of this Promissory Note (the "Note") at the
Interest Rate (as defined in Article I). This Note evidences the purchase price
payable to Payee in respect of the redemption of certain capital stock of Maker
held by Payee. The unpaid principal balance of this Note, together with all
accrued but unpaid interest thereon, and all other sums due hereunder (including
delinquency charges), shall be due and payable on January 1, 2004 or on such
earlier date as may be required under the terms hereof (the "Maturity Date").
ARTICLE I
INTEREST AND PRINCIPAL
A. INTEREST RATE, COMPUTATION AND PAYMENTS. As used herein, "Interest
Rate" means six percent (6%) per annum. Interest shall accrue from the date
hereof and shall be payable (i) quarterly, in arrears, on the first day of each
January, April, July and October commencing on October 1, 1998, (ii) on the
Maturity Date and (iii) on each date on which the principal balance of this Note
is paid in part or in full, or if any such day is not a business day, on the
next succeeding business day. Interest on the unpaid principal balance of this
Note shall be computed on the basis of a 365-(or 366-) day year, as the case may
be, for the number of actual days elapsed.
B. PRINCIPAL REPAYMENT. This Note shall mature in twenty-two (22)
consecutive quarterly installments of principal, the first twenty-one (21) of
which shall be equal to $395,615.56, payable on the first day of each January,
April, July and October, commencing on October 1, 1998, with the twenty-second
(22nd) and final installment of principal on the Maturity Date of $395,448.61,
or if any such day is not a business day, on the next succeeding business day.
C. OPTIONAL PREPAYMENTS. Maker may prepay this Note in whole or in
part, without premium or penalty, at any time and from time to time. Optional
prepayments on this Note shall be applied pro rata to the then remaining
installments of principal under this Note.
<PAGE> 2
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
A. EVENTS OF DEFAULT. Any of the following events shall constitute an
"Event of Default" hereunder:
(i) Maker shall fail to pay when due any payment of principal or
interest due hereunder in accordance with the terms hereof, and in the case
of interest, such failure continues for a period of ten business days after
the date when such payment is due; or
(ii) Maker shall (a) become insolvent, (b) be dissolved, (c) fail
generally to pay its debts as such debts income become due, (d) commence a
voluntary case under federal bankruptcy, insolvency or other similar law,
(e) consent to the appointment of or taking of possession by a receiver,
liquidator, assignee, trustee, custodian, or sequestrator (or other similar
official) of Maker or of any substantial part of its property, (f) make an
assignment for the benefit of creditors, or (g) take any action intended or
likely to result in any event described in the foregoing clauses (a) through
(f) or
(iii) There shall be filed or entered in respect of Maker a
petition, decree or order for relief by a court having jurisdiction in the
premises in an involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal, state or foreign
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee or sequestrator (or other similar
official) of Maker or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and any such petition, decree
or order shall continue undismissed, unstayed and in effect for a period of
30 days.
B. REMEDIES. Upon the occurrence of any Event of Default in the case of
Article II(A)(i), above, Payee may, by notice to Maker, declare the unpaid
principal balance hereunder (with accrued interest thereon) and all other
amounts owing under this Note to be due and payable forthwith, whereupon the
same shall immediately become due and payable. Upon the occurrence of any Event
of Default in the case of Articles I(A)(ii) or II(A)(iii) above, the unpaid
principal balance hereunder (with accrued interest thereon) and all other
amounts owing under this Note shall automatically immediately become due and
payable. Except as expressly provided in this Article II(B), presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
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ARTICLE III
GENERAL CONDITIONS
A. METHOD OF PAYMENT. All payments under this Note shall be made,
without setoff, counterclaim or other defense, by check to Payee at his address
set forth above, or by any other method or to any other place or account
hereafter designated by Payee in writing.
B. APPLICATION OF PAYMENTS RECEIVED. Except as otherwise provided in
this Note, all payments received by Payee on this Note shall be applied by Payee
as follows:
FIRST, to the payment of delinquency charges, if any;
SECOND, to accrued and unpaid interest then due and owing; and
THIRD, to the reduction of principal of this Note.
C. DEFAULT INTEREST. If all or a portion of the principal of or
interest on this Note shall not be paid when due (whether at stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is equal to the Interest Rate plus two percent (2%), from the
date of such non-payment until such overdue amount is paid in full; provided,
however, that if any such default interest is in excess of the amount permitted
to be charged to Maker under applicable federal or state law Payee shall be
entitled to collect default interest at the highest rate permitted by such law.
D. COST AND EXPENSES ON DEFAULT. If an Event of Default shall have
occurred, Payee shall be entitled to collect, in addition to principal, interest
and delinquency charges hereunder, all costs of collection, including without
limitation, reasonable attorneys' fees, incurred in connection with any of
Payee's collection efforts, whether or not suit on this Note or any foreclosure
proceeding is filed.
E. NO WAIVER BY PAYEE. No failure on the part of Payee to exercise any
right or remedy hereunder, whether before or after the occurrence of an Event of
Default, shall constitute a waiver thereof, and no waiver of any past default
shall constitute a waiver of any future default or of any other default. No
failure to accelerate the debt evidenced hereby by reason of default hereunder,
acceptance of a past due installment, or indulgence granted from time to time,
shall be construed to be a waiver of the right to insist upon prompt payment
thereafter or to impose delinquency charges retroactively or prospectively,
shall be deemed to be a novation of this Note, shall be construed as a
reinstatement of the debt evidence hereby, as a waiver of Payee's right of
acceleration or as a waiver of any other right, or shall be construed so as to
preclude the exercise of any right which Payee may have, whether by law, by
agreement or otherwise; and Maker and each endorser or guarantor hereby
expressly waives the benefit of any statute or rule
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<PAGE> 4
of law or equity which would produce a result contrary to or in conflict with
the foregoing. The terms and provisions of this Note may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
F. WAIVER BY MAKER. Maker hereby waives presentment, protest, demand,
diligence, notice of dishonor and of nonpayment.
G. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and inure to
the benefit of Payee, Maker and their respective successors, assigns, heirs and
estates, except that Payee may not assign or transfer any of his rights or
obligations under this Note without the prior written consent of Maker, which
consent shall not be unreasonably withheld.
ARTICLE IV
SUBORDINATION
A. NOTE SUBORDINATED TO SENIOR DEBT.
(i) Maker, for itself and its successors, and Payee, by his
acceptance of this Note, agrees that all payments under this Note
("Subordinated Obligations") are subordinated, to the extent and in the
manner provided in this Article IV, to the prior payment in full in cash of
all Senior Debt.
(ii) This Article IV shall constitute a continuing offer to all
persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Debt, and such provisions are made for the benefit
of the holders of Senior Debt, and such holders are made obligees hereunder
and any one or more of them may enforce such provisions. The provisions of
this Article IV shall be reinstated if at any time any payment of the Senior
Debt is rescinded or must otherwise be returned by any holder thereof or any
representative of such holder upon the insolvency, bankruptcy or
reorganization of Maker. (a) For purposes hereof, "Senior Debt" means all
indebtedness other than such indebtedness specified as junior or pari passu,
for the purposes of priority, to this Note; and (b) "Senior Debtholders"
means the holders from time to time of any of the Senior Debt.
B. NOTE SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR DEBT ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION. Upon any payment or distribution of
properties of Maker or any successor in any dissolution, winding up, liquidation
or reorganization of Maker (including in bankruptcy, insolvency or receivership
proceedings or upon any assignment for the benefit of creditors, whether
voluntary or involuntary):
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(i) The holders of all Senior Debt shall first be entitled to
receive payments in full of all amounts due on or with respect to Senior
Debt, including the principal, premium, and interest, fees, expenses and
costs due thereon or relating thereto, including any interest accruing
subsequent to a bankruptcy or other similar proceeding at the rate specified
in the applicable Senior Debt whether or not such interest is an allowed
claim enforceable against Maker in any such proceeding, before Payee is
entitled to receive any payment or distribution in cash, securities or other
property on account of the Subordinated Obligations (other than any payment
or distribution in the form of securities, the payment of which (a) is
subordinated in right of payment to all Senior Debt that may at the time be
outstanding to the same extent as or to a greater extent than, the
Subordinated Obligations are subordinate to the Senior Debt as provided in
this Article and (b) is not payable prior to the payment in full of the
Senior Debt).
(ii) Any payment or distribution, whether in cash, cash equivalents,
property or securities, to which Payee would be entitled except for the
provisions of this Article IV, shall be paid by the liquidating trustee or
agent or other person making such a payment or distribution, directly to the
holders of Senior Debt (or their representative) ratably according to the
respective amounts of Senior Debt held or represented by each, to the extent
necessary to make payment in full in cash of all Senior Debt remaining
unpaid after giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Debt.
(iii) In the event that, notwithstanding the foregoing, any payment
or distribution, whether in cash, cash equivalents property or securities
(other than any payment or distribution in the form of securities, the
payment of which (a) is subordinated in right of payment to all Senior Debt
that may at the time be outstanding to the same extent as, or to a greater
extent than, the Subordinated Obligations are subordinate to the Senior
r represented by each, for application to the payment of all Senior Debt
remaining unpaid to the extent necessary to indefeasibly pay all Senior Debt
in full in accordance with its terms, after giving effect to any concurrent
payment or distribution or provision therefor to or for the Senior
Debtholders.
C. PAYMENTS OTHERWISE PERMITTED. Nothing contained herein shall prevent
Maker, at any time except during any dissolution, liquidation, winding up, or
reorganization of Maker referred to in Article IV(B), above, or under the
conditions described in Article IV(B), above, from making payments at any time
with respect to the Subordinated Obligations in accordance with terms hereof
(including, without limitation, Article IV(G)).
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D. SUBROGATION. Subject to the payment in full in cash of all Senior
Debt, Payee shall be subrogated to the rights of the Senior Debtholders to
receive payments or distributions of properties of Maker applicable to the
Senior Debt until all amounts due and payable on the Subordinated Obligations
shall be paid in full. For the purpose of such subrogation, no payments or
distributions to the Senior Debtholders by or on behalf of Maker, or by or on
behalf of Payee by virtue of this Article IV(D) , which otherwise would have
been made to Payee shall, as between Maker, its creditors other than the Senior
Debtholders and Payee, be deemed to be payment by Maker to or on account of the
Senior Debt, it being understood that the provisions of this Article IV(D) are,
and are intended, solely for the purpose of defining the relative rights of
Payee, on the one hand, and Senior Debtholders, on the other hand.
E. OBLIGATIONS OF MAKER UNCONDITIONAL. Nothing contained in this
Article IV or elsewhere in this Note is intended to or shall impair, as between
Maker, its creditors (other than the Senior Debtholders) and Payee the
obligations of Maker, which are absolute and unconditional, to pay to Payee the
Subordinated Obligations when the same become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of Payee and
creditors of Maker other than the Senior Debtholders, nor shall anything herein
or therein prevent Payee from exercising all remedies otherwise permitted by
applicable law upon default hereunder, subject to the rights, if any, and the
limitations on remedies provided in this Article IV of the holders of Senior
Debt. Notwithstanding anything herein to the contrary, upon any distribution of
properties of Maker referred to in this Article IV, Payee shall be entitled to
rely upon any judgment made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the liquidating trustee or agent or other person making any
distribution to Payee, for the purpose of ascertaining the persons entitled to
participate in such distribution, the Senior Debtholders and other obligations
of Maker, the amount thereof or payable thereon, the amount or amounts paid or
distributed heron and all other facts pertinent thereto or to this Article IV.
F. NOTICE TO PAYEE. Notwithstanding the provisions of this Article IV
or any other provisions of this Note, Payee shall not be charged with knowledge
of the existence of any facts that would prohibit the making of any payment in
respect of the Subordinated Obligations, unless and until Payee shall have
actual knowledge thereof; and, prior to the receipt of any written notice
thereof from Maker or a Senior Debtholder or from any trustee, fiduciary or
agent therefor, Payee shall be entitled in all respects to assume that no such
facts exist. Payee shall be entitled to rely on the delivery to it of a written
notice by any person or entity representing itself to be a Senior Debtholder (or
trustee, fiduciary or agent therefor). In the event that Payee determines in
good faith that further evidence is required with respect to the right of any
person or entity as a Senior Debtholder may request such person or entity to
furnish evidence to the reasonable satisfaction of Payee to participate in any
payment or distribution pursuant to this Article IV, Payee may request such
person or entity to furnish evidence to the reasonable satisfaction of Payee as
to the amount of Senior Debt held by such person or entity, the extent to which
such person or entity is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such person or entity under this
Article IV and if such evidence is
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not furnished, Payee may defer any payment to such person or entity pending
judicial determination as to the right of such person or entity to receive such
payment.
G. NO PAYMENT ON NOTE IN CERTAIN CIRCUMSTANCES.
(i) In the event that any payment of principal of, or interest on,
the Senior Debt is not paid when due, whether at stated maturity, by
mandatory prepayment, by acceleration or otherwise (each a "Senior Debt
Payment Default"), and the holders of Senior Debt or their agent shall have
given written notice to Maker and Payee of such non-payment (a "Payment
Default Notice"), then no payment shall be made by Maker, or accepted by
Payee, on account of the Subordinated Obligations unless and until such
payment shall have been made or such Senior Debt Payment Default is waived
in accordance with the terms of the applicable documents or instruments
evidencing the Senior Debt (the "Senior Credit Documents").
(ii) In the event that any default under or in respect of the Senior
Debt that entitles any holders of any Senior Debt to accelerate the maturity
of such Senior Debt outstanding thereunder (other than a Senior Debt Payment
Default) (each, a "Senior Debt Non-Payment Default") shall have occurred and
be continuing and Maker and Payee shall have received written notice of such
Senior Debt Non-Payment Default from the holders of any Senior Debt or any
agent of such holder (a "Payment Blockage Notice"), then no payment shall be
made by Maker, or accepted by Payee, on account of the Subordinated
Obligations during the period (a "Payment Blockage Period") commencing on
the date Maker and Payee received such Payment Blockage Notice and ending on
the earlier of (a) the date one hundred and twenty (120) days thereafter and
(b) the date on which the Senior Debt Non-Payment Default giving rise to the
Payment Blockage Period is cured or waived in accordance with the terms of
the applicable Senior Credit Documents; provided that no Senior Debt
Non-Payment default or event which, with the giving of notice and/or the
lapse of time, would become a Senior Debt Non-Payment Default which existed
on the date of the commencement of any such blockage period may be used as
the basis for any subsequent Payment Blockage Notice unless such Senior Debt
Non-Payment Default or event, as the case may be, shall in the interim have
been cured or waived for a period of not less than ninety (90) consecutive
days.
(iii) The failure to make any payment with respect to the
Subordinated Obligations by reason of the provisions of Article IV(G)(i) or
Article IV(G)(ii), shall not be construed as preventing the occurrence of an
Event of Default hereunder or impairing the right to declare due and payable
the principal amount of and premium on this Note, plus accrued but unpaid
interest, subject to Article IV(G)(v).
(iv) In the event that, notwithstanding the foregoing provisions of
this Article IV(G), any payment on account of principal of, premium,
interest on this Note shall be made by or on behalf of Maker and received by
Payee at a time when such
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payment was prohibited by the provisions of this Article IV(G), then, unless
and until such payment is no longer prohibited by this Article IV(G), such
payment shall be received and held in trust by Payee for the benefit of,
and, if any of the Senior Debt remains outstanding, shall be immediately
paid over to, either Maker or the Senior Debtholders (or their
representatives) ratably according to the respective amounts of Senior Debt
held or represented by each, for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to indefeasibly pay all Senior
Debt in full in accordance with its terms, after giving effect to any
concurrent payment or distribution or provision therefor to or for the
Senior Debtholders. The provisions of this Article IV(G)(iv) shall not apply
to any payment with respect to which Article IV(G)(v) would be applicable.
(v) Notwithstanding anything contained herein to the contrary,
during any period commencing on the date of receipt of a Payment Default
Notice under Article IV(G)(i) or a Payment Blockage Notice under Article
IV(G)(ii) and ending on the earlier of (X) the date the default that is the
subject of such Payment Default Notice or Payment Blockage Notice, as the
case may be, is cured or waived or (Y) ninety (90) days after receipt by
Maker of such Payment Default Notice or one hundred and eighty (180) days
after the receipt by Payee of such Payment Blockage Notice, Payee shall not
(i) accelerate this Note as provided in Article II(B), (ii) initiate any
judicial proceeding or action to collect this Note or (iii) initiate any
case, proceeding or other action in respect of Maker of the type referred to
in clause (ii) or (iii) of Article II(A) unless, prior to the expiration of
such period, (A) any holder of the Senior Debt or its agent shall take any
action of the type referred to in clauses (i), (ii) and (iii) above in
respect of Senior Debt or (B) any Senior Debt shall have become
automatically due and payable in accordance with its terms.
(vi) Prior to taking any action of the type referred to in clauses
(i), (ii) and (ii) of Article IV(G)(v), Maker shall give the agent for the
holders of any Senior Debt of which it is actually aware not less than five
Business Days' notice of Maker's intent to take any such action (which
notice may be given during the continuation of any period during which Payee
is blocked from receiving payments under this Article IV(G)).
H. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK (THE "STATE").
MAKER HEREBY SUBMITS TO PERSONAL JURISDICTION IN THE STATE FOR THE ENFORCEMENT
OF MAKER'S OBLIGATIONS HEREUNDER, AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER
THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN THE STATE FOR THE
PURPOSES OF LITIGATION TO ENFORCE SUCH OBLIGATIONS OF MAKER. IN THE EVENT SUCH
LITIGATION IS COMMENCED, MAKER AGREES THAT SERVICE OF PROCESS MAY BE MADE, AND
PERSONAL JURISDICTION OVER MAKER OBTAINED, BY MAILING A COPY OF THE SUMMONS,
COMPLAINT AND OTHER PLEADINGS REQUIRED TO COMMENCE SUCH LITIGATION TO MAKER AT
ITS ADDRESS LISTED ABOVE.
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I. AMENDMENT AND RESTATEMENT. This Note amends and restates that
certain Promissory Note made by Maker in favor of Payee, dated January 1, 1997
(the "Existing Note"), in the amount of $10,210,000, and is given as a
continuation and rearrangement of, and not a novation, release or satisfaction
of, the Existing Note.
IN WITNESS WHEREOF, Maker has caused this instrument to be duly
executed as of the date first above written.
NATIONAL NETWORK TECHNOLOGIES INC.
By /s/ Hugh O'Kane, Jr.
---------------------------
Name: Hugh O'Kane, Jr.
Title: President
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 21, 1998 ("Agreement"),
between NATIONAL NETWORK TECHNOLOGIES INC., a Delaware corporation ("NNTI";
together with its subsidiaries and affiliates, the "Company"), having a place of
business at 88 White Street, New York, New York 10013, and HUGH J. O'KANE, JR.
(the "Executive"), having an address at 190 Piping Rock Road, Locust Valley, New
York 11560.
W I T N E S S E T H:
WHEREAS, the Company wishes to continue to employ the
Executive in connection with its business; and
WHEREAS, the Executive wishes to continue to be employed by
the Company.
NOW, THEREFORE, in consideration of the mutual undertakings
and obligations set forth herein, the Company and the Executive agrees as
follows:
1. Employment and Term. Subject to the terms and conditions of
this Agreement, and unless earlier terminated as provided for herein, the
Company agrees to employ the Executive, and the Executive hereby accepts
employment by the Company, for the period commencing on the date hereof for a
period of five (5) years, (the "Initial Term"). After the end of the Initial
Term, this Agreement shall automatically renew for successive periods of one
year each (the "Renewal Terms") unless either party gives at least 90 days'
notice, prior to the end of the Initial Term, or any such Renewal Term, that it
does not intend to renew this Agreement (the "Initial Term," together with all
Renewal Terms referred to as the "Term").
2. Duties. During the Term, the Executive shall serve the
Company as President and Chief Operating Officer, and shall perform such
services and other duties for the Company, as may reasonably be requested from
time to time by the Board of Directors of NNTI (the "Board"). During the Term,
the Executive shall devote his business time, attention and energies, on a
full-time basis, to the Company and shall not accept any other employment or
engage in any other business activity during the Term.
3. Compensation.
(a) During the Term, the Company shall compensate the
Executive in accordance with the Company's compensation policies for the
Executives as set forth from time to time by senior management of the Company.
Such compensation shall be paid in the form of base salary and bonus earned in
accordance with such policies. Base salary shall be paid on a bi-weekly basis in
accordance with the Company's normal payroll practices, which practices are
<PAGE> 2
subject to change at the discretion of the Board. Any earned bonus shall be
based on performance and shall be paid to the Executive on or prior to April 30
of the following calendar year.
(b) In accordance with the foregoing, the Executive shall be
paid a base salary at the rate of at least $265,000 per calendar year during the
Term (the "Base Salary"), subject to annual review by the Executive and the
Board. In addition, Executive shall receive an annual bonus of $250,000 (the
"Bonus"), subject to the performance and profitability of the Company and the
prior review and approval of the Board, and pro-rated as to actual periods of
employment for each calendar year of the Term.
4. Benefits.
(a) The Executive shall be entitled to participate in all
benefit plans, including medical, health, retirement, short- and long-term
disability, stock incentive and other such plans established by the Company from
time to time for executives or employees of the Company generally.
(b) The Executive shall be entitled to reimbursement for all
normal and reasonable travel, entertainment and other expenses necessarily
incurred by the Executive in the performance of his duties hereunder. The
Executive shall submit on a timely basis such back-up documentation for
reimbursement purposes as the Company may require under its established policies
and procedures and in accordance with IRS regulations.
(c) The Executive shall be entitled to four (4) weeks paid
vacation in each calendar year of the Term, pro-rated as to actual periods of
employment during the Term. Unused vacation time in one year may be carried over
into succeeding years with the approval of the Board.
5. Termination on Disability, Death or Notice, or for Cause.
(a) In the event that the Executive, due to physical or mental
disability or incapacity, is unable to perform substantially the his duties
hereunder for a period of four (4) consecutive months, or for a total period of
six (6) months in any eighteen-month consecutive period, the Company shall have
the right to terminate this Agreement, and the Executive's employment hereunder,
upon thirty (30) days' prior written notice. In the event of a termination under
this Section 5(a), the Executive shall be entitled to be paid the Base Salary
through the effective date of the termination, together with a pro-rated share
of the Bonus, but shall not be entitled to any other payments or accrued
benefits.
(b) If the Executive dies during the Term, this Agreement
shall thereupon immediately terminate. In the event of a termination under this
Section 5(b), the Executive's personal representative shall be entitled to be
paid the Base Salary through the effective date of
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the termination, together with a pro-rated share of the Bonus, but shall not be
entitled to any other payments or accrued benefits.
(c) The Company, with the approval of the Board in accordance
with the Company's bylaws, may terminate this Agreement and the Executive's
employment hereunder at any time during the Term upon ninety (90) days written
notice. Upon any such termination pursuant to this Section 5(c), the Executive
shall be entitled to a severance payment consisting of the Base Salary through
the end of the Term, together with a pro-rated share of the Bonus through the
effective date of the termination.
(d) The Company may terminate this Agreement, and the
Executive's employment hereunder, at any time during the Term, if the Executive
(i) shall have been convicted of a felony, (ii) shall have been convicted of a
criminal act against the Company or any shareholder, subsidiary or affiliate
thereof, (iii) shall have committed an act of moral turpitude, or an act
constituting common law fraud, (iv) shall be in material breach of the
Executive's obligations hereunder, and if such breach is curable, such breach
shall remain uncured five business days after the Executive's receipt of written
notice of such breach from the Company, or (v) shall consistently fail to follow
the reasonable directions and policies of the Board, and such failure shall
continue for five business days after the Executive's receipt of written notice
of such failure by the Board. In the event of any termination pursuant to this
Section 5(d), the Executive shall be entitled to receive only the Base Salary as
of and through the effective date of the termination, and shall not be entitled
to any other payments of any kind whatsoever.
6. Confidentiality.
(a) The Executive understands and acknowledges that, as a
result of the Executive's employment by the Company, he will become informed of
and be in possession of confidential and proprietary information of the Company.
During the Term, and for a period of three (3) years thereafter, the Executive
shall not use or disclose to any person or entity except as required by law or
judicial process, any Confidential Information, for any reason or purpose
whatsoever, nor shall he make use of any of the Confidential Information for his
own purposes or for the benefit of any person or entity except the Company or
any direct or indirect subsidiary of the Company. For purposes of this
Agreement, "Confidential Information" shall mean all industrial and intellectual
property of the Company, or any direct or indirect subsidiary of the Company,
including, without limitation, (a) patents, patent applications, patent rights,
trademarks, trademark applications, copyrights, copyright applications,
know-how, certificates of public convenience and necessity, franchises,
licenses, proprietary processes and formulae, layouts, processes, inventions,
and (b) all proprietary rights pertaining to any product or service
manufactured, sold, distributed or marketed, or used, employed or exploited in
the development, manufacture, license, sale, distribution, marketing or
maintenance thereof, and all documentation and media constituting, describing or
relating to the foregoing, and all information of a proprietary or confidential
nature relating to any of them and/or their business, financial condition or
results or operations (other than information that is in the public domain at
the time of receipt thereof by the
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Executive, or otherwise becomes public other than as a result of the breach by
the Executive of his agreement hereunder or is rightfully received from a third
party without any obligation of confidentiality to the Company or is
independently developed by the Executive).
Upon the termination of this Agreement or cessation of the
Executive's employment by the Company for any reason, the Executive shall
promptly deliver to the Company all files, records, documents and other
materials relating to the Company which are in the Executive's possession or
control.
7. Developments.
(a) The Executive shall disclose promptly and fully to the
Company all ideas, devices, inventions, improvements, developments, computer
software, product marks and designations, technical information and know-how,
whether or not patentable, copyrightable or otherwise protestable, relating in
any way to the Company's business, which the Executive conceived or made or may
conceive or make, whether solely or jointly with others. All of such work
product required to be disclosed to the Company are referred to herein as the
"Proprietary Developments." The Executive confirms that all of the Proprietary
Developments made by the Executive are "works-made-for-hire" for the Company and
further, that all of the Executive's right, title and interest in and to the
Proprietary Developments shall be deemed to be held by the Executive in a
fiduciary capacity and solely for the Company's benefit and shall be the sole
and exclusive property of the Company.
(b) The Executive, when requested to do so, either during or
after the Executive's employment by the Company, shall, for no additional
compensation (except as contemplated by subsection (d) below):
(i) assign and convey to the Company in writing the
Executive's entire right, title and interest in and to the Proprietary
Developments to the extent not owned by the Company as a matter of law
from the time of their creation;
(ii) execute, acknowledge and deliver all such instruments
of assignment, transfer and conveyance, and any such further
instruments and documents, in form and substance satisfactory to
the Company, as the Company shall reasonably deem necessary or
advisable;
(iii) assist the Company and its designated
representatives and agents in preparing patent, copyright or other
applications, domestic and foreign, covering the same, and sign and
deliver all such applications and assignments thereof to the Company;
and
(iv) generally give all information and testimony, sign
all papers and do all things which may be needed or reasonably
requested by the Company to the end that
4
<PAGE> 5
the Company may obtain, extend, reissue, maintain and enforce United
States and foreign patents or copyrights or other rights or
registrations covering the Proprietary Developments.
(c) hereby irrevocably nominates and appoints the Company as
the Executive's attorney-in-fact to sign and deliver all such papers, and
perform all such acts under this Section 7, in the event of the Executive's
absence, unavailability, refusal or death, such nomination and appointment
hereby being granted with full authority and with a valuable interest vested in
the Company.
(d) The Company shall bear all expenses which it causes to be
incurred in obtaining, extending, reissuing, maintaining and enforcing such
patents, copyrights or other rights or registrations and investing and
perfecting title thereto in the Company, and shall pay the Executive reasonable
compensation for any time which it may reasonably require of the Executive
therefor subsequent to his employment by the Company.
(e) In the event of the unenforceability of all or part of the
foregoing provisions of this Section 7, as determined by a court of competent
jurisdiction, the Executive hereby transfers and assigns to the Company such
lesser interests in the Proprietary Developments as may be determined by such a
court to be a reasonable grant of interests under the circumstances, but, in any
event, the Executive shall be deemed to have granted to the Company not less
than an irrevocable, non-exclusive license (with the right to sub-license) of
such Proprietary Developments, without payment of any royalty.
8. Non-Competition; Non-Interference; Non-Solicitation. The
Executive agrees that for the period commencing on the date hereof and ending
two (2) years after the termination or cessation of his employment by the
Company for any reason, the Executive shall not, (i) directly or indirectly
engage, whether such engagement shall be as an officer, director, partner,
shareholder, affiliate or other participant, in any business that competes with
the Subject Business (a "Competitive Business") or represent in any way any
Competitive Business, whether such engagement or representation shall be for
profit or not (provided, that nothing contained herein shall prevent the
Executive from holding up to 1% of the outstanding voting capital stock of any
publicly traded company), (ii) interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between the Company and any third party,
including, without limitation, any licensee, licensor, customer, supplier,
consultant or employee of the Company or any direct or indirect subsidiary of
the Company, (iii) affirmatively assist or induce others to engage in any
Competitive Business in any manner described in the foregoing clause (i) and
(ii), or (iv) solicit or attempt to solicit for any business endeavor any
employee of the Company. As used herein, the term "Subject Business" means and
includes any business located anywhere in the United States of America that
provides electrical contracting, engineering and/or cable laying or maintenance
services.
5
<PAGE> 6
9. Acknowledgment; Remedies and Survival. The Executive
acknowledges that he will have a position of trust and managerial responsibility
for the Company; that his services are unique to the Company; and that,
accordingly, the restrictions contained in Sections 6, 7 and 8 hereof are
reasonable under the circumstances. Because the Company does not have an
adequate remedy at law, the Company shall be entitled to injunctive relief, in
addition to any other legal remedies, in the event of any breach of Sections 6,
7 or 8 of this Agreement. The provisions of Sections 6, 7 and 8, and this
Section 9, shall survive any termination or cessation of the Executive's
employment by the Company.
10. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to its subject matter, merges
and supersedes any prior or contemporaneous agreements or understandings with
respect to its subject matter, and shall not be modified or amended except by
another instrument in writing executed by the Company and the Executive. Failure
of a party to enforce any provision of this Agreement or to require at any time
performance of any of the obligations hereunder shall not be construed to be a
waiver, nor to in any way affect the validity of this Agreement.
11. Severability. If any provision of this Agreement is held
to be invalid or unenforceable by any court or tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and such provision shall be carried out as nearly as possible
according to its original terms and intent to eliminate such invalidity or
unenforceability.
12. Successors and Assigns. Neither party shall have the right
to assign this personal services Agreement, nor any rights or obligations
hereunder, without the written consent of the other party; provided, that, upon
the sale, transfer or reorganization of all or substantially all of the business
assets or stock ownership of the Company, this Agreement shall inure to the
benefit of, and be binding upon, both the Executive and the Company's successor,
in the same manner and to the same extent as though such successor were the
Company. Subject to the foregoing, this Agreement shall inure to the benefit of,
and bind, the parties hereto and their legal representatives, heirs, successors
and assigns.
13. Notices. All notices to either party hereunder required to
be in writing shall be deemed to have been duly given at the time when mailed in
any United States post office enclosed in a registered or certified postage-paid
envelope to the address of such party set forth in the introductory paragraph
hereof.
14. Construction; Counterparts. The headings contained in this
Agreement are for convenience only and shall in no way restrict or otherwise
affect the construction of the provisions hereof. This Agreement may be executed
in multiple counterparts, each of which shall be an original and all of which
together shall constitute one and the same instrument.
15. Governing Law. This Agreement shall be governed by the
laws of the State of New York applicable to agreements made and fully to be
performed therein. Any claim
6
<PAGE> 7
arising out of or in connection with this Agreement, or any other agreement
relating in any way to the Executive's employment by the Company or the
termination or cessation thereof, must be brought in a court of competent
jurisdiction in New York, New York.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATIONAL NETWORK TECHNOLOGIES INC.
By /s/ KEVIN M. O'KANE
-------------------------------------
Name: Kevin M. O'Kane
Title: Vice President
/s/HUGH J. O'KANE, JR.
------------------------------------------
Hugh J. O'Kane, Jr.
8
<PAGE> 9
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1, dated as of February 14, 2000 to the Employment
Agreement, dated as of July 21, 1998 (the "Employment Agreement") by and between
Lexent Inc. f/k/a National Network Technologies, Inc., a Delaware corporation
(the "Company"), and Hugh J. O'Kane, Jr. ("Executive").
WHEREAS, the Company and the Executive wish to amend the terms of the
Executive's employment with the Company.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree that the Employment Agreement
shall be amended as follows:
SECTION 1 . Employment and Term. The first sentence of Section 1 of
the Employment Agreement is hereby amended and restated to read in its entirety
as follows:
"Subject to the terms and conditions of this Agreement, and unless
earlier terminated as provided for herein, the Company agrees to employ the
Executive, and the Executive hereby accepts employment by the Company, for
the period commencing on the date hereof and ending February 17, 2005 (the
"Initial Term")."
SECTION 2. Duties. The first sentence of Section 2 of the Employment
Agreement is hereby amended and restated to read in its entirety as follows:
"During the Term, the Executive shall serve the Company as Chairman of
the Board of Directors, and shall perform such services and other duties
for the Company, as may reasonably be requested from time to time by the
Board of Directors (the "Board")."
SECTION 3. Compensation.
(a) Section 3(b) of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"In accordance with the foregoing, the Executive shall be paid a
base salary at the rate of at least $265,000 per calendar year during
the Term (the "Base Salary"), subject to the annual review by the
Executive and the Board. In any event, the Base Salary will be
increased five percent (5%) each calendar year beginning January 1,
2001."
(b) A Section 3(c) of the Employment Agreement is hereby added to read
in its entirety as follows:
<PAGE> 10
"In addition, the Executive shall receive an annual bonus
targeted at $300,000 (the "Bonus"), subject to the performance and
profitability of the Company and the prior review and approval of the
Board, and pro-rated as to actual periods of employment for each
calendar year of the Term. In any event, the targeted amount of the
Bonus will increased five percent (5%) each calendar year beginning
January 1, 2001."
SECTION 4. Other Provisions. Except as expressly modified by this
Amendment No. 1, all provisions of the Employment Agreement shall remain in full
force and effect.
SECTION 5. Counterparts. This Amendment No. 1 may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6. Governing Law. This Amendment No. 1 shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to the conflicts of laws provisions thereof.
* * * * *
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of the day and year first above written.
LEXENT INC.
By /s/ Alf T. Hansen
--------------------------
Alf T. Hansen
President and Chief Executive Officer
/s/ Hugh J. O'Kane, Jr.
--------------------------
Hugh J. O'Kane, Jr.
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 21, 1998 ("Agreement"),
between NATIONAL NETWORK TECHNOLOGIES INC., a Delaware corporation ("NNTI";
together with its subsidiaries and affiliates, the "Company"), having a place of
business at 88 White Street, New York, New York 10013, and KEVIN M. O'KANE (the
"Executive"), having an address at 153 South Mountain Avenue, Montclair, New
Jersey 07042.
W I T N E S S E T H:
WHEREAS, the Company wishes to continue to employ the
Executive in connection with its business; and
WHEREAS, the Executive wishes to continue to be employed by
the Company.
NOW, THEREFORE, in consideration of the mutual undertakings
and obligations set forth herein, the Company and the Executive agrees as
follows:
1. Employment and Term. Subject to the terms and conditions of
this Agreement, and unless earlier terminated as provided for herein, the
Company agrees to employ the Executive, and the Executive hereby accepts
employment by the Company, for the period commencing on the date hereof for a
period of five (5) years, (the "Initial Term"). After the end of the Initial
Term, this Agreement shall automatically renew for successive periods of one
year each (the "Renewal Terms") unless either party gives at least 90 days'
notice, prior to the end of the Initial Term, or any such Renewal Term, that it
does not intend to renew this Agreement (the "Initial Term", together with all
Renewal Terms referred to as the "Term").
2. Duties. During the Term, the Executive shall serve the
Company as Executive Vice President, and shall perform such services and other
duties for the Company, as may reasonably be requested from time to time by the
Board of Directors of NNTI (the "Board"). During the Term, the Executive shall
devote his business time, attention and energies, on a full-time basis, to the
Company and shall not accept any other employment or engage in any other
business activity during the Term.
3. Compensation.
(a) During the Term, the Company shall compensate the
Executive in accordance with the Company's compensation policies for the
Executives as set forth from time to time by senior management of the Company.
Such compensation shall be paid in the form of base salary and bonus earned in
accordance with such policies. Base salary shall be paid on a bi-weekly basis in
accordance with the Company's normal payroll practices, which practices are
subject to change at the discretion
<PAGE> 2
of the Board. Any earned bonus shall be based on performance and shall be paid
to the Executive on or prior to April 30 of the following calendar year.
(b) In accordance with the foregoing, the Executive shall be
paid a base salary at the rate of at least $265,000 per calendar year during the
Term (the "Base Salary"), subject to annual review by the Executive and the
Board. In addition, Executive shall receive an annual bonus of $250,000 (the
"Bonus"), subject to the performance and profitability of the Company and the
prior review and approval of the Board, and pro- rated as to actual periods of
employment for each calendar year of the Tenn.
4. Benefits.
(a) The Executive shall be entitled to participate in all
benefit plans, including medical, health, retirement, short- and long-term
disability, stock incentive and other such plans established by the Company from
time to time for executives or employees of the Company generally.
(b) The Executive shall be entitled to reimbursement for all
normal and reasonable travel, entertainment and other expenses necessarily
incurred by the Executive in the performance of his duties hereunder. The
Executive shall submit on a timely basis such back-up documentation for
reimbursement purposes as the Company may require under its established policies
and procedures and in accordance with IRS regulations.
(c) The Executive shall be entitled to four (4) weeks paid
vacation in each calendar year of the Term, pro-rated as to actual periods of
employment during the Term. Unused vacation time in one year may be carried over
into succeeding years with the approval of the Board.
5. Termination on Disability, Death or Notice, or for
Cause.
(a) In the event that the Executive, due to physical or mental
disability or incapacity, is unable to perform substantially his duties
hereunder for a period of four (4) consecutive months, or for a total period of
six (6) months in any eighteen-month consecutive period, the Company shall have
the right to terminate this Agreement, and the Executive's employment hereunder,
upon thirty (30) days' prior written notice. In the event of a termination under
this Section 5(a), the Executive shall be entitled to be paid the Base Salary
through the effective date of the termination, together with a pro-rated share
of the Bonus, but shall not be entitled to any other payments or accrued
benefits.
(b) If the Executive dies during the Term, this Agreement
shall thereupon immediately terminate. In the event of a termination under this
Section 5(b), the Executive's personal representative shall be entitled to be
paid the Base Salary through the effective date of the termination, together
with a pro-rated share of the Bonus, but shall not be entitled to any other
payments or accrued benefits.
-2-
<PAGE> 3
(c) The Company, with the approval of the Board in accordance
with the Company's bylaws, may terminate this Agreement and the Executive's
employment hereunder at any time during the Term upon ninety (90) days written
notice. Upon any such termination pursuant to this Section 5(c), the Executive
shall be entitled to a severance payment consisting of the Base Salary through
the end of the Term, together with a pro-rated share of the Bonus through the
effective date of the termination.
(d) The Company may terminate this Agreement, and the
Executive's employment hereunder, at any time during the Term, if the Executive
(i) shall have been convicted of a felony, (ii) shall have been convicted of a
criminal act against the Company or any shareholder, subsidiary or affiliate
thereof, (iii) shall have committed an act of moral turpitude, or an act
constituting common law fraud, (iv) shall be in material breach of the
Executive's obligations hereunder, and if such breach is curable, such breach
shall remain uncured five business days after the Executive's receipt of written
notice of such breach from the Company, or (v) shall consistently fail to follow
the reasonable directions and policies of the Board, and such failure shall
continue for five business days after the Executive's receipt of written notice
of such failure by the Board. In the event of any termination pursuant to this
Section 5(d), the Executive shall be entitled to receive only the Base Salary as
of and through the effective date of the termination, and shall not be entitled
to any other payments of any kind whatsoever.
6. Confidentiality.
(a) The Executive understands and acknowledges that, as a
result of the Executive's employment by the Company, he will become informed of
and be in possession of confidential and proprietary information of the Company.
During the Term, and for a period of three (3) years thereafter, the Executive
shall not use or disclose to any person or entity except as required by law or
judicial process, any Confidential Information, for any reason or purpose
whatsoever, nor shall he make use of any of the Confidential Information for his
own purposes or for the benefit of any person or entity except the Company or
any direct or indirect subsidiary of the Company. For purposes of this
Agreement, "Confidential Information" shall mean all industrial and intellectual
property of the Company, or any direct or indirect subsidiary of the Company,
including, without limitation, (a) patents, patent applications, patent rights,
trademarks, trademark applications, copyrights, copyright applications,
know-how, certificates of public convenience and necessity, franchises,
licenses, proprietary processes and formulae, layouts, processes, inventions,
and (b) all proprietary rights pertaining to any product or service
manufactured, sold, distributed or marketed, or used, employed or exploited in
the development, manufacture, license, sale, distribution, marketing or
maintenance thereof, and all documentation and media constituting, describing or
relating to the foregoing, and all information of a proprietary or confidential
nature relating to any of them and/or their business, financial condition or
results or operations (other than information that is in the public domain at
the time of receipt thereof by the Executive, or otherwise becomes public other
than as a result of the breach by the Executive of his agreement hereunder or is
rightfully received from a third party without any obligation of confidentiality
to the Company or is independently developed by the Executive).
-3-
<PAGE> 4
(b) Upon the termination of this Agreement or cessation of the
Executive's employment by the Company for any reason, the Executive shall
promptly deliver to the Company all files, records, documents and other
materials relating to the Company which are in the Executive's possession or
control.
7. Developments.
(a) The Executive shall disclose promptly and fully to the
Company all ideas, devices, inventions, improvements, developments, computer
software, product marks and designations, technical information and know-how,
whether or not patentable, copyrightable or otherwise protestable, relating in
any way to the Company's business, which the Executive conceived or made or may
conceive or make, whether solely or jointly with others. All of such work
product required to be disclosed to the Company are referred to herein as the
"Proprietary Developments." The Executive confirms that all of the Proprietary
Developments made by the Executive are "works-made-for-hire" for the Company and
further, that all of the Executive's right, title and interest in and to the
Proprietary Developments shall be deemed to be held by the Executive in a
fiduciary capacity and solely for the Company's benefit and shall be the sole
and exclusive property of the Company.
(b) The Executive, when requested to do so, either during or
after the Executive's employment by the Company, shall, for no additional
compensation (except as contemplated by sub- section (d) below):
(i) assign and convey to the Company in writing the
Executive's entire right, title and interest in and to the Proprietary
Developments to the extent not owned by the Company as a matter of law from the
time of their creation;
(ii) execute, acknowledge and deliver all such instruments
of assignment, transfer and conveyance, and any such further instruments and
documents, in form and substance satisfactory to the Company, as the Company
shall reasonably deem necessary or advisable;
(iii) assist the Company and its designated
representatives and agents in preparing patent, copyright or other applications,
domestic and foreign, covering the same, and sign and deliver all such
applications and assignments thereof to the Company; and
(iv) generally give all information and testimony, sign
all papers and do all things which may be needed or reasonably requested by the
Company to the end that the Company may obtain, extend, reissue, maintain and
enforce United States and foreign patents or copyrights or other rights or
registrations covering the Proprietary Developments.
(c) hereby irrevocably nominates and appoints the Company as
the Executive's attorney-in-fact to sign and deliver all such papers, and
perform all such acts under this Section 7, in the event of the Executive's
absence, unavailability, refusal or death, such nomination and
-4-
<PAGE> 5
appointment hereby being granted with full authority and with a valuable
interest vested in the Company.
(d) The Company shall bear all expenses which it causes to be
incurred in obtaining, extending, reissuing, maintaining and enforcing such
patents, copyrights or other rights or registrations and investing and
perfecting title thereto in the Company, and shall pay the Executive reasonable
compensation for any time which it may reasonably require of the Executive
therefor subsequent to his employment by the Company.
(e) In the event of the unenforceability of all or part of the
foregoing provisions of this Section 7, as determined by a court of competent
jurisdiction, the Executive hereby transfers and assigns to the Company such
lesser interests in the Proprietary Developments as may be determined by such a
court to be a reasonable grant of interests under the circumstances, but, in any
event, the Executive shall be deemed to have granted to the Company not less
than an irrevocable, non-exclusive license (with the right to sub-license) of
such Proprietary Developments, without payment of any royalty.
8. Non-Competition; Non-Interference; Non- Solicitation. The
Executive agrees that for the period commencing on the date hereof and ending
two (2) years after the termination or cessation of his employment by the
Company for any reason, the Executive shall not, (i) directly or indirectly
engage, whether such engagement shall be as an officer, director, partner,
shareholder, affiliate or other participant, in any business that competes with
the Subject Business (a "Competitive Business") or represent in any way any
Competitive Business, whether such engagement or representation shall be for
profit or not (provided, that nothing contained herein shall prevent the
Executive from holding up to 1% of the outstanding voting capital stock of any
publicly traded company), (ii) interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between the Company and any third party,
including, without limitation, any licensee, licensor, customer, supplier,
consultant or employee of the Company or any direct or indirect subsidiary of
the Company, (iii) affirmatively assist or induce others to engage in any
Competitive Business in any manner described in the foregoing clause (i) and
(ii), or (iv) solicit or attempt to solicit for any business endeavor any
employee of the Company. As used herein, the term "Subject Business" means and
includes any business located anywhere in the United States of America that
provides electrical contracting, engineering and/or cable laying or maintenance
services.
9. Acknowledgment; Remedies and Survival. The Executive
acknowledges that he will have a position of trust and managerial responsibility
for the Company; that his services are unique to the Company; and that,
accordingly, the restrictions contained in Sections 6, 7 and 8 hereof are
reasonable under the circumstances. Because the Company does not have an
adequate remedy at law, the Company shall be entitled to injunctive relief, in
addition to any other legal remedies, in the event of any breach of Sections 6,
7 or 8 of this Agreement. The provisions of Sections 6, 7 and 8, and this
Section 9, shall survive any termination or cessation of the Executive's
employment by the Company.
-5-
<PAGE> 6
10. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to its subject matter, merges
and supersedes any prior or contemporaneous agreements or understandings with
respect to its subject matter, and shall not be modified or amended except by
another instrument in writing executed by the Company and the Executive. Failure
of a party to enforce any provision of this Agreement or to require at any time
performance of any of the obligations hereunder shall not be construed to be a
waiver, nor to in any way affect the validity of this Agreement.
11. Severability. If any provision of this Agreement is held
to be invalid or unenforceable by any court or tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and such provision shall be carried out as nearly as possible
according to its original terms and intent to eliminate such invalidity or
unenforceability.
12. Successors and Assigns. Neither party shall have the night
to assign this personal services Agreement, nor any rights or obligations
hereunder, without the written consent of the other party; provided, that, upon
the sale, transfer or reorganization of all or substantially all of the business
assets or stock ownership of the Company, this Agreement shall inure to the
benefit of, and be binding upon, both the Executive and the Company's successor,
in the same manner and to the same extent as though such successor were the
Company. Subject to the foregoing, this Agreement shall inure to the benefit of,
and bind, the parties hereto and their legal representatives, heirs, successors
and assigns.
13. Notices. All notices to either party hereunder required to
be in writing shall be deemed to have been duly given at the time when mailed in
any United States post office enclosed in a registered or certified postage-paid
envelope to the address of such party set forth in the introductory paragraph
hereof.
14. Construction; Counterparts. The headings contained in this
Agreement are for convenience only and shall in no way restrict or otherwise
affect the construction of the provisions hereof. This Agreement may be executed
in multiple counterparts, each of which shall be an original and all of which
together shall constitute one and the same instrument.
15. Governing Law. This Agreement shall be governed by the
laws of the State of New York applicable to agreements made and fully to be
performed therein. Any claim arising out of or in connection with this
Agreement, or any other agreement relating in any way to the Executive's
employment by the Company or the termination or cessation thereof, must be
brought in a court of competent jurisdiction in New York, New York.
[SIGNATURE PAGE FOLLOWS]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATIONAL NETWORK TECHNOLOGIES INC.
By /s/ Hugh J. O'Kane, Jr.
--------------------------------
Name: Hugh O'Kane, Jr.
Title: President
/s/ Kevin M. O'Kane
----------------------------------
Kevin M. O'Kane
-7-
<PAGE> 8
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1, dated as of February 14, 2000 to the Employment
Agreement, dated as of July 21, 1998 (the "Employment Agreement") by and between
Lexent Inc. f/k/a National Network Technologies, Inc., a Delaware corporation
(the "Company"), and Kevin M. O'Kane ("Executive").
WHEREAS, the Company and the Executive wish to amend the terms of
the Executive's employment with the Company
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree that the Employment Agreement
shall be amended as follows:
SECTION 1. Employment and Term. The first sentence of Section 1 of
the Employment Agreement is hereby amended and restated to read in its entirety
as follows:
"Subject to the terms and conditions of this Agreement, and unless
earlier terminated as provided for herein, the Company agrees to employ the
Executive, and the Executive hereby accepts employment by the Company, for
the period commencing on the date hereof and ending February 17, 2005 (the
"Initial Term")."
SECTION 2. Duties. The first sentence of Section 2 of the
Employment Agreement is hereby amended and restated to read in its entirety as
follows:
"During the Term, the Executive shall serve the Company as Vice
Chairman of the Board of Directors, Chief Operating Officer, Secretary and
Assistant Treasurer and shall perform such services and other duties for
the Company, as may reasonably be requested from time to time by the Board
of Directors (the "Board")."
SECTION 3. Compensation.
(a) Section 3(b) of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"In accordance with the foregoing, the Executive shall be
paid a base salary at the rate of at least $265,000 per calendar
year during the Term (the "Base Salary"), subject to the annual
review by the Executive and the Board. In any event, the Base
Salary will be increased five percent (5%) each calendar year
beginning January 1, 2001."
(b) A Section 3(c) of the Employment Agreement is hereby added to
read in its entirety as follows:
"In addition, the Executive shall receive an annual bonus
targeted at $300,000 (the "Bonus"), subject to the performance and
profitability of the Company and the prior review and approval of
the Board, and pro-rated as to actual periods of employment for
each calendar year of the Term. In any event,
<PAGE> 9
the targeted amount of the Bonus will increased five percent (5%)
each calendar year beginning January 1, 2001."
SECTION 4. Other Provisions. Except as expressly modified by this
Amendment No. 1, all provisions of the Employment Agreement shall remain in
full force and effect.
SECTION 5. Counterparts. This Amendment No. 1 may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6. Governing Law. This Amendment No. 1 shall be governed by
and construed in accordance with the laws of the State of New York, without
reference to the conflicts of laws provisions thereof.
* * * * *
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of the day and year first above written.
LEXENT INC.
By /s/ Alf T. Hansen
____________________________________
Alf T. Hansen
President and Chief Executive Officer
/s/ Kevin M. O'Kane
____________________________________
Kevin M. O'Kane
<PAGE> 1
EXHIBIT 10.8
-----------------------------------
National Network Technologies, Inc.
-----------------------------------
26 Broadway, Suite 400
New York, New York 10004
Phone (212) 837-7770 - Fax (212) 837-7817
August 20, 1998
Mr. Jonathan H. Stern
57 Springhouse Road
Woodcliff Lake, NJ 07675
Dear Jon:
We are delighted to extend to you our offer of employment to join National
Network Technologies as our Chief Financial Officer. We are confident that you
will make an outstanding contribution to the growth and development of our firm
as we become a much larger and geographically diverse corporation.
The terms of our offer of employment are as follows:
* Your base salary will be $205,100 per year.
* In addition, you will be eligible for the achievement of a $50,000 targeted
bonus award that will be paid in mid-January following the fiscal year
closing. This targeted bonus will be measured by the establishment of
mutually agreed upon, formal objectives which compromise 75% of the award.
The remainder of the bonus award will be based on more subjective criteria
and will carry a weight of 25%.
For calendar year 1998, your bonus will be prorated and determined by more
subjective criteria as well as our evaluation of your performance for the
remaining months of the year.
* As our Chief Financial Officer, you will receive Incentive Stock Options to
purchase 220,000 common shares of stock at $.50 per share (approximately 1%
of current outstanding shares). The Incentive Stock Options will have the
following vesting schedule:
- After the first 12 months, 20% of the 220,000 share Incentive Stock
Option will be vested.
- Thereafter, 1.67% of the remaining shares will vest each month for the
remaining 48 months.
<PAGE> 2
- In the event that our company undergoes a change of control, you will be
automatically vested in 50% of the shares that are not as yet vested.
Vesting Example (A): Assume that a change of control takes place
between the 24th and 25th month. You will have the following
number of shares vested.
1. 20% of 220,000 shares or 44,000 shares would be vested
after the first 12 months.
2. Additional 44,000 shares would vest in the ensuing 12
months.
3. 50% of the remaining shares, or 66,000, would qualify for
accelerated vesting. Therefore, the total number of shares
vested after the first 2 years would be 154,000 or 70% of
your Incentive Stock Options.
Vesting Example (B): Assume that a change of control takes place
between the 48th and 49th month. You will have the following
number of shares vested:
1. After 12 months, you would be vested in 44,000 shares.
2. For the ensuing 36 months, you would be vested in 132,000
shares.
3. 50% of the remaining shares or 27,000. Accelerated vesting
would give you another 22,000 of vested shares. Therefore,
the total shares vested after 48 months of employment
would be 198,000 or 90% of your Incentive Stock Options.
- In the event the company undergoes a change of control after 30 months
and you are terminated without cause, your remaining unvested shares
will automatically vest to 100% of the shares that are not yet vested.
- - You and your family will be covered by our Blue Cross/Blue Shield medical and
dental plans at no cost to you.
- - You will receive three weeks vacation each year.
- - We are in the process of establishing a 401(k) plan and discontinuing our
Defined Benefit Plan and our Supplemental Employee Retirement Plan (Money
Purchase Plan). All employees will be eligible to participate in the 401(k)
plan. Our company does not anticipate providing any matching funds to an
employee's election to participate in the 401(k) plan.
We hope that this offer of employment meets with your approval. We look forward
to a long and successful relationship with you as the Chief Financial Officer.
As you requested, we will provide you with a prearranged severance of six months
continuation and benefit coverage in the event you are terminated without cause.
Cause is to be defined as an act of dishonesty or disloyalty to the company.
<PAGE> 3
If the above meets with your approval, please sign in the space provided below
and return the signed offer of employment to us.
Very truly yours,
/s/Hugh O'Kane, Jr.
- --------------------
Hugh O'Kane, Jr.
Chairman and Chief Executive Officer
Acceptance of Offer of Employment
Signed by: /s/ Jonathan H. Stern
---------------------------------
Date: 8/24/98
---------------------------------
<PAGE> 4
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1, dated as February 14, 2000 to the Employment
Agreement, dated as of August 20, 1998 (as amended hereby, the "Employment
Agreement") by and between Lexent Inc. f/k/a National Network Technologies,
Inc., a Delaware corporation (the "Company"), and Jonathan H. Stern
("Executive").
WHEREAS, the Company and the Executive wish to amend the terms of the
Executive's employment with the Company.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree that the Employment Agreement
shall be amended as follows:
SECTION 1. Duties. The Executive's position appearing in first sentence
of the first paragraph of the Employment Agreement is hereby amended to read
"Executive Vice President and Chief Financial Officer."
SECTION 2. Bonus. The paragraph after the second bullet point of the
Employment Agreement is hereby amended and restated to read in its entirety as
follows:
"In addition, you will be eligible to receive bonus compensation in
respect of each fiscal year (or portion thereof) occurring during your
employment with us in an amount targeted at 40% of your base salary if our
company achieves the target performance objectives established by the
Compensation Committee of the Board of Directors with respect to such fiscal
year. You will also be eligible to receive additional bonus compensation in
respect of each fiscal year (or portion thereof) occurring during your
employment with us in an amount targeted at 60% of your base salary (prorated
for any portion of a fiscal year) for exceptional performance as may be
determined by the Compensation Committee in its sole discretion."
SECTION 3. Other Provisions. Except as expressly modified by this
Amendment No. 1, all provisions of the Employment Agreement shall remain in full
force and effect.
SECTION 4. Counterparts. This Amendment No. 1 may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 5. Governing Law. This Amendment No. 1 shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to the conflicts of laws provisions thereof.
*****
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of the day and year first above written.
LEXENT INC.
By /s/ Alf T. Hansen
------------------------------------------
Alf T. Hansen
President and Chief Executive Officer
/s/ Jonathan H. Stern
------------------------------------------
Jonathan H. Stern
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 13, 1999, by and
between LEXENT INC., a Delaware corporation (the "Company"), and JOSEPH HAINES
(the "Employee").
W I T N E S S E T H:
WHEREAS the Company desires to induce the Employee to enter
into employment with the Company for the period provided in this Agreement, and
the Employee is willing to accept such employment with the Company on a
full-time basis, all in accordance with the terms and conditions set forth
below;
NOW, THEREFORE, for and in consideration of the premises
hereof and the mutual covenants contained herein, the parties hereto hereby
covenant and agree as follows:
1. Employment.
(a) The Company hereby agrees to employ the Employee, and the
Employee hereby agrees to accept such employment with the Company,
commencing on December 13, 1999 (the "Commencement Date") and
continuing for the period set forth in Section 2 hereof, all upon the
terms and conditions hereinafter set forth.
(b) The Employee affirms and represents that as of the
commencement of his employment by the Company on the Commencement Date,
he will be under no obligation to any former employer or other party
which is in any way inconsistent with, or which imposes any restriction
upon, the Employee's acceptance of employment hereunder with the
Company, the employment of the Employee by the Company, or the
Employee's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as provided
in this Agreement, the term of the Employee's employment under this Agreement
shall be for a period beginning on the Commencement Date and ending on December
31, 2003. The period from the Commencement Date until December 31, 2003, or, in
the event that the Employee's employment hereunder is earlier terminated as
provided herein, such shorter period, is hereinafter called the "Employment
Term"(the "Employment Term").
3. Duties. The Employee shall be employed as Executive Vice
President of the Company and President of the Company's wholly-owned subsidiary,
Hugh O'Kane Datacom, LLC, a Delaware limited liability company ("HOK"), shall
faithfully perform and discharge such
<PAGE> 2
duties as inhere in the positions of Executive Vice President of the Company and
President of HOK as may be specified in the By-laws of the Company or the
Limited Liability Company Agreement of HOK with respect to such positions, and
shall also perform and discharge such other duties and responsibilities
consistent with such position as the Board of Directors of the Company (the
"Board of Directors") shall from time to time determine. The Employee shall
report to the Chief Executive Officer of the Company. The Employee shall perform
his duties principally at offices of the Company in New York City, New York,
with such travel to such other locations from time to time as the Chief
Executive Officer may reasonably prescribe. Except as may otherwise be approved
in advance by the Board of Directors, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, the Employee shall devote his full business time throughout the
Employment Term to the services required of him hereunder. The Employee shall
render his business services exclusively to the Company and its subsidiaries
during the Employment Term and shall use his best efforts, judgment and energy
to improve and advance the business and interests of the Company and its
subsidiaries in a manner consistent with the duties of his positions.
4. Compensation.
(a) Salary. As compensation for the performance by the
Employee of the services to be performed by the Employee hereunder
during the Employment Term, the Company shall pay the Employee a base
salary at the annual rate of Two Hundred and Forty Thousand Dollars
($240,000) (said amount, together with any increases thereto as may be
determined from time to time by the Board of Directors in its sole
discretion, being hereinafter referred to as "Salary"). Any Salary
payable hereunder shall be paid in regular intervals in accordance with
the Company's payroll practices from time to time in effect.
(b) Bonus. The Employee shall be eligible to receive bonus
compensation from the Company in respect of each fiscal year (or
portion thereof) occurring during the Employment Term in an amount
targeted at 40% of his Salary (pro rated for any portion of a fiscal
year occurring during the Employment Term) if the Company achieves the
target performance objectives established by the Compensation Committee
of the Board of Directors (the "Compensation Committee") with respect
to such fiscal year. The Employee shall also be eligible to receive
additional bonus compensation from the Company in respect of each
fiscal year (or portion thereof) occurring during the Employment Term
for exceptional performance as may be determined by the Compensation
Committee in its sole discretion. In any event, the Employee shall be
entitled to receive an aggregate bonus (in addition to the Initial
Payment discussed in (c) below) of not less than $115,000 in respect of
the fiscal year ending December 31, 2000 (pro rated as aforesaid if the
Employment Term ends prior to December 31, 2000).
(c) Initial Payment. In connection with the execution and
delivery by the Employee of this Agreement, the Company shall pay the
Employee a one-time bonus in
2
<PAGE> 3
the amount of $50,000 (the "Initial Payment") in respect of the fiscal
year ending December 31, 2000 on or before January 31, 2000. The
Employee shall not receive any bonus in respect of the fiscal year
ending December 31, 1999.
5. Other Benefits; Options.
(a) General. During the Employment Term, the Employee shall:
(i) be eligible to participate in employee fringe
benefits and pension and/or profit sharing plans that may be provided
by the Company for its senior executive employees in accordance with
the provisions of such plans, as the same may be in effect from time to
time;
(ii) be eligible to participate in any medical and
health plans or other employee welfare benefit plans that may be
provided by the Company for its senior executive employees in
accordance with the provisions of any such plans, as the same may be in
effect from time to time;
(iii) be entitled to the number of paid vacation days
in each calendar year determined by the Company from time to time for
its senior executive officers, provided that such number of paid
vacation days in each calendar year shall not be less than fifteen (15)
work days (three calendar weeks); the Employee shall also be entitled
to all paid holidays given by the Company to its senior executive
officers;
(iv) be entitled to sick leave, sick pay and
disability benefits in accordance with any Company policy that may be
applicable to senior executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable
and necessary out-of-pocket business expenses incurred by the Employee
in the performance of his duties hereunder in accordance with the
Company's normal policies from time to time in effect.
(b) Grant of Initial Options. In connection with the execution
and delivery of this Agreement by the Employee, the Company is granting
to the Employee options ("Initial Options") to purchase 350,000 shares
of Company Common Stock, $.001 par value ("Common Stock"), at a
purchase price of $10.00 per share, of which options to purchase
100,000 shares of Common Stock shall vest immediately and options to
purchase the remaining 250,000 shares of Common Stock will vest in
thirty-six equal increments over the thirty-six month period beginning
on the first anniversary of the Commencement Date, all as provided in
the Stock Option Agreements of even date herewith between the Company
and the Employee.
3
<PAGE> 4
(c) Grant of Subsequent Options. In connection with his
continued employment by the Company, on the first anniversary of the
Commencement Date, and on each of the subsequent anniversaries thereof
during the Employment Term, the Company agrees to grant the Employee
options ("Subsequent Options") to purchase 15,000 shares of Common
Stock at a purchase price equal to the Fair Market Value (as defined in
(d) below) of the Common Stock on the date of grant, which options
shall vest in twenty-five percent increments over a four-year period
with the first twenty-five percent to vest on the first anniversary of
the date of grant. Each grant of these Subsequent Options shall be
pursuant to specific terms set forth in a stock option agreement
between the Company and the Employee.
(d) Fair Market Value. "Fair Market Value" means as of any
date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without
limitation the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the
Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest
volume of trading in Common Stock) on the last market trading day prior
to the day of grant of the particular Subsequent Options and as
reported in the Wall Street Journal or such other source as the
Compensation Committee deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or is regularly
quoted by a recognized securities dealer but selling prices are not
reported, the Fair Market Value of a share of Common Stock shall be the
average between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of grant of the
particular Subsequent Options and as reported in the Wall Street
Journal or such other source as the Compensation Committee deems
reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith
by the Compensation Committee.
6. Confidential Information. The Employee hereby covenants,
agrees and acknowledges as follows:
(a) The Employee has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company and any present or future subsidiaries or affiliates of the
Company (collectively with the Company, the "Companies"), including but
4
<PAGE> 5
not limited to (i) customer lists; related records and compilations of
information; the identity, lists or descriptions of any new customers,
referral sources or organizations; financial statements; cost reports
or other financial information; contract proposals or bid ding
information; business plans; training and operations methods and
manuals; personnel records; software programs; reports and
correspondence; and management systems, policies or procedures,
including related forms and manuals; (ii) information pertaining to
future developments such as future marketing or acquisition plans or
ideas, and potential new business locations and (iii) all other
tangible and intangible property, which are used in the business and
operations of the Companies but not made public. The information and
trade secrets relating to the business of the Companies described
hereinabove in this paragraph (a) are hereinafter referred to
collectively as the "Confidential Information", provided that the term
Confidential Information shall not include any information (A) that is
or becomes generally publicly available (other than as a result of
violation of this Agreement by the Employee), (B) that the Employee
receives on a nonconfidential basis from a source (other than the
Companies or their representatives) that is not known by him to be
bound by an obligation of secrecy or confidentiality to any of the
Companies or (C) that was in the possession of the Employee prior to
disclosure by the Companies.
(b) The Employee shall not disclose, use or make known for his
or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Employee's duties under this
Agreement. The Employee may disclose Confidential Information when
required by a third party and applicable law or judicial process, but
only after providing immediate notice to the Company of any third
party's request for such information, which notice shall include the
Employee's intent to disclose any Confidential Information with respect
to such request.
(c) The Employee acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to seek injunctive relief in addition to any other available
rights and remedies in case of any such breach or threatened breach by
the Employee; provided, however, that nothing contained herein shall be
construed as prohibiting the Companies from pursuing any other rights
and remedies available for any such breach or threatened breach.
(d) The Employee agrees that upon termination of his
employment with the Company for any reason, the Employee shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer discs
and other electronic media).
5
<PAGE> 6
(e) The obligations of the Employee under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this
Agreement.
(f) Without limiting the generality of Section 12 hereof, the
Employee hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Employee's heirs, successors and
legal representatives.
7. Termination of Employment.
(a) The Employee's employment hereunder shall be terminated
upon the occurrence of any of the following:
(i) death of the Employee;
(ii) the Employee's inability to perform his duties
on account of disability or incapacity for a period of one hundred
eighty (180) or more days, whether or not consecutive, within any
period of twelve (12) consecutive months;
(iii) the Company giving written notice, at any time,
to the Employee that the Employee's employment is being terminated for
"Cause" (as defined in (b) below);
(iv) the Company giving written notice, at any time,
to the Employee that the Employee's employment is being terminated or
is not being renewed, other than pursuant to clause (i), (ii) or (iii)
above ("Without Cause");
(v) the Employee terminates his employment hereunder
because the Company, solely due to an Executive Management Stockholder
Block (as defined in (c) below), fails to consummate an initial public
offering of its Common Stock within one (1) year of the Commencement
Date; or
(vi) the Employee terminates his employment hereunder
for any reason whatsoever (whether by reason of retirement, resignation
or otherwise), other than in accordance with (v) above ("Without Good
Reason").
(b) Cause. The following actions, failures and events by or
affecting the Employee shall constitute "Cause" for termination within
the meaning of clause (iii) of Section 7 (a) above:
(i) an indictment for or conviction of the Employee
of, or the entering of a plea of nolo contendere by the Employee with
respect to, having committed a felony;
6
<PAGE> 7
(ii) abuse of controlled substances or alcohol or
acts of dishonesty or moral turpitude by the Employee that are
detrimental to one or more of the Companies;
(iii) acts or omissions by the Employee that the
Employee knew were likely to damage the business of one or more of the
Companies;
(iv) negligence by the Employee in the performance
of, or disregard by the Employee of, his material obligations under
this Agreement or otherwise relating to his employment, which
negligence or disregard continue unremedied for a period of fifteen
(15) days after written notice thereof to the Employee; or
(v) failure by the Employee to obey the reasonable
and lawful orders and policies of the Board of Directors that are
consistent with the provisions of this Agree ment.
(c) Executive Management Stockholder Block. For purposes of
this Agreement, an "Executive Management Stockholder Block" means the
decision by the Company's Executive Management Stockholders (as that
term is defined in the Stockholders Agreement, dated as of July 23,
1998, among the Company and the stockholders party thereto, as the same
may be amended or modified from time to time) to not consent to an
initial public offering by the Company of its Common Stock; provided,
however, that an Executive Management Stockholder Block shall not be
deemed to have occurred if a decision or action by the Board of
Directors or the holders of the Company's Series A Convertible
Preferred Stock, $.001 par value, prevents the consummation of such an
initial public offering.
8. Payments Upon Termination.
(a) Termination Without Cause. In the event that the
Employee's employment is terminated by the Company Without Cause during
the period between the Commencement Date and the date six months
following the Commencement Date (the "Initial Period"), then the
Company shall pay to the Employee, as severance pay or liquidated
damages or both, monthly payments at the rate per annum of his Salary
at the time of such termination for a period of:
(i) eighteen (18) months after such termination if
such termination occurs in the first month of the Initial
Period;
(ii) seventeen (17) months after such termination if
such termination occurs in the second month of the Initial
Period;
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<PAGE> 8
(iii) sixteen (16) months after such termination if
such termination occurs in the third month of the Initial
Period;
(iv) fifteen (15) months after such termination if
such termination occurs in the fourth month of the Initial
Period;
(v) fourteen (14) months after such termination if
such termination occurs in the fifth month of the Initial
Period;
(vi) thirteen (13) months after such termination if
such termination occurs in the sixth month of the Initial
Period; and
(vii) twelve (12) months after such termination if
such termination occurs after the end of the Initial Period.
(b) Termination by the Employee due to an Executive Management
Stockholder Block. In the event that the Employee's employment is
terminated by the Employee pursuant to clause (v) of Section 7(a) above
during the ninety (90) day period following the date of such Executive
Management Stockholder Block, then:
(i) the Company shall pay to the Employee, as
severance pay or liquidated damages or both, monthly payments
at the rate per annum of his Salary at the time of such
termination for a period of twenty-four (24) months after such
termination; and
(ii) the Company shall, upon the request therefor by
the Employee as described below, purchase up to 100,000 shares
of Common Stock acquired by the Employee pursuant to the
exercise of Initial Options upon the following terms and
conditions (the "Employee's Put"):
(1) The Employee's Put may be exercised by
Employee at any time during the thirty (30) day
period following the Employee's termination by giving
written notice thereof ("Put Notice") to the Company
specifying the amount of shares (up to the maximum
referred to above) of Common Stock the Employee
wishes to sell to the Company (the "Put Securities").
The date of exercise of the Employee's Put shall be
the date of the Put Notice.
(2) Within 30 days following receipt of the
Put Notice, the Company shall deliver to the Employee
a notice (the "Company Notice") stating the purchase
price per share of the Put Securities determined in
accordance with clause (4) hereof and a date and
place for closing of the purchase (the
8
<PAGE> 9
"Put Closing"), which date shall be within ninety
(90) days after the date the Company receives the Put
Notice or, in the event an appraiser is hired
pursuant to clause (4) hereof, within ninety (90)
days after receipt of such appraiser's determination
of the purchase price of the Put Securities.
(3) At the Put Closing, the Company shall
pay to the Employee the purchase price of the Put
Securities by check or wire transfer. At such Put
Closing, the Employee shall execute and deliver to
the Company such stock powers and such other
instruments of transfer as counsel for the Company
deems necessary to validly and effectively transfer
title to the Put Securities to the Company, free and
clear of any lien, claim or encumbrance.
(4) The purchase price per share of the Put
Securities shall be the Fair Market Value (as defined
in Section 5(d) above) of the Common Stock on the
date of exercise of the Employee's Put. In the event
that such Fair Market Value was determined by the
Compensation Committee as described in Section
5(d)(iii) above, the Employee shall have the right to
disagree with such determination and elect, within
ten (10) days of receipt of the Company Notice, to
have the Company select a recognized business
appraiser to calculate the purchase price of the Put
Securities which shall be the fair market value
thereof. The determination of the purchase price by
such appraiser will be binding on both parties. All
costs and expenses of the appraisal, including,
without limitation, all fees of the appraiser, shall
be borne by the Company.
(c) Payments Limited. Notwithstanding anything to the contrary
expressed or implied herein, except as required by applicable law and
except as set forth in Sections 8(a) and (b) above, neither the Company
nor any of its affiliates shall be obligated to make any payments to
the Employee or on his behalf of whatever kind or nature by reason of
the Employee's cessation of employment (including, without limitation,
by reason of termination of the Employee's employment by the Company's
for Cause, Without Cause or otherwise), other than (i) such amounts, if
any, of his Salary as shall have accrued and remained unpaid as of the
date of said cessation and (ii) such other amounts, if any, which may
be then otherwise payable to the Employee pursuant to the terms of the
Company's benefits plans or pursuant to clause (v) of Section 5(a)
above.
(d) Interest. No interest shall accrue on or be paid with
respect to any portion of any payments under this Section 8.
9
<PAGE> 10
9. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder
shall be assignable by the Employee or his beneficiaries or legal
representatives without the Company's prior written consent; provided,
however, that nothing in this Section 9(a) shall preclude the Employee
from designating a beneficiary to receive any benefit payable hereunder
upon his death or incapacity. This Agreement may not be assigned by the
Company except with the Employee's prior written consent, provided,
however, that the Company may assign this Agreement to an affiliate of
the Company with the financial resources to fulfill the Company's
obligations hereunder.
(b) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to exclusion, attachment, levy or similar process or
to assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of no
effect.
10. Restrictive Covenants.
(a) Competition. During the Employment Term and, in the event
the Employee's employment is terminated, during the period (the
"Applicable Continuation Period") following such termination and
continuing until (i) the last payment is made to the Employee pursuant
to Section 8(a) or (b) hereof, as the case may be, or (ii) in the case
of a termination of the Employee's employment pursuant to Section
7(a)(iii) or (vi) hereof, the first anniversary of the date of such
termination, the Employee will not directly or indirectly (as a
director, officer, executive employee, manager, consultant, independent
contractor, advisor or otherwise) engage in competition with, or own
any interest in, perform any services for, participate in or be
connected with any business or organization which engages in
competition with any of the Companies within the meaning of Section
10(d), provided, however, that the provisions of this Section 10(a)
shall not be deemed to prohibit the Employee's ownership of not more
than two percent (2%) of the total shares of all classes of stock
outstanding of any publicly held company, or ownership, whether through
direct or indirect stock holdings or otherwise, of not more than one
percent (1%) of any other business.
(b) Non-Solicitation. During the Employment Term and during
the Applicable Continuation Period, the Employee, without the prior
written consent of the Company, will not directly or indirectly induce
or attempt to induce any employee of any of the Companies to leave the
employ of the Company or such subsidiary or affiliate, or in any way
interfere with the relationship between any of the Companies and any
employee thereof.
10
<PAGE> 11
(c) Non-Interference. During the Employment Term and during
the Applicable Continuation Period, the Employee, without the prior
written consent of the Company, will not directly or indirectly hire,
engage, send any work to, place orders with, or in any manner be
associated with any supplier, contractor, subcontractor or other
business relation of any of the Companies if such action by him would
have an adverse effect on the business, assets or financial condition
of any of the Companies, or materially interfere with the relationship
between any such person or entity and any of the Companies.
(d) Certain Definitions.
(i) For purposes of this Section 10, a person or
entity (including, without limitation, the Employee) shall be deemed to
be a competitor of one or more of the Companies, or a person or entity
(including, without limitation, the Employee) shall be deemed to be
engaging in competition with one or more of the Companies, if such
person or entity conducts, or, to the knowledge of the Employee, plans
to conduct, the Specified Business (as hereinafter defined) as a
significant portion of its business in any of the markets served by the
Companies or, in the case of a person or entity pursuing a business
strategy of providing telecommunications infrastructure services,
anywhere in the continental United States. Notwithstanding the
foregoing, a Competitive Local Exchange Carrier ("CLEC") shall not be
deemed to be a competitor of, or engaging in competition with, one or
more of the Companies, unless such CLEC, directly or indirectly,
conducts, or, to the knowledge of the Employee, plans to conduct, the
Specified Business.
(ii) For purposes of this Agreement, "Specified
Business" means (A)(1) providing outsourced telecommunications
infrastructure services to local or long distance telecommunications
providers or (2) engaging in any business conducted by the Company at
the time of termination of the Employee's employment with the Company
other than business of a CLEC that is not, directly or indirectly,
engaged in the business described in clause (A)(1) or (B) conducting,
operating, carrying out or engaging in the business of managing any
entity described in clause (A).
(e) Certain Representations of the Employee. In connection
with the foregoing provisions of this Section 10, the Employee
represents that his experience, capabilities and circumstances are such
that such provisions will not prevent him from earning a livelihood.
The Employee further agrees that the limitations set forth in this
Section 10 (including, without limitation, time and territorial
limitations) are reasonable and properly required for the adequate
protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Employee in this
Section 10 (and in Section 6 hereof) shall survive the expiration or
termination of this Agreement.
(f) Injunctive Relief. The Employee acknowledges and agrees
that a remedy at law for any breach or threatened breach of the
provisions of Section 10 hereof would be
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inadequate and, therefore, agrees that the Company and any of its
subsidiaries or affiliates shall be entitled to seek injunctive relief
in addition to any other available rights and remedies in cases of any
such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting the Company or any
of its affiliates from pursuing any other rights and remedies available
for any such breach or threatened breach.
11. Representations and Warranties. The Employee represents
and warrants that he is not subject to or a party to any agreement, contract,
covenants, order or other restriction which in any way prohibits, restricts or
impairs the Employee's ability to enter into this Agreement and carry out his
duties and obligations hereunder. Each party hereto represents and warrants to
the other that (i) each has the full legal right and power and all authority and
approvals required to enter into, execute and deliver this Agreement and to
perform fully all of his or its obligations hereunder; and (ii) this Agreement
has been duly executed and delivered and constitutes a valid and binding
obligation of each party, enforceable in accordance with its terms.
12. Binding Effect. Without limiting or diminishing the effect
of Section 9 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
13. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Employee, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto, provided, however, that any notice sent by certified or registered mail
shall be deemed delivered on the date of delivery as evidenced by the return
receipt.
14. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
15. Severability. The Employee agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 10 hereof is void or constitutes an unreasonable restriction
against the Employee, the provisions of such Section 6 or 10 shall not be
rendered void but shall apply with respect to such extent as such court may
judicially determine constitutes a reasonable restriction under the
circumstances. If any part of this Agreement other than Section 6 or 10 is held
by a court of competent jurisdiction to be invalid, illegible or incapable of
being enforced in whole or in part by reason of any rule of law or public
policy, such part shall be deemed to be severed from the remainder of this
Agreement for the purpose only of the particular legal proceedings in question
and all other covenants and provisions
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of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
16. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
17. Entire Agreement; Modifications. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may be modified or amended only by an instrument in
writing signed by both parties hereto.
18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 14
IN WITNESS WHEREOF, the Company and the Employee have duly
executed and delivered this Agreement as of the day and year first above
written.
LEXENT INC.
By: /s/ Kevin O'Kane
----------------------------------
Name: Kevin O'Kane
Title: C.O.O.
/s/ Joseph Haines
-------------------------------------
Joseph Haines
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<PAGE> 1
Exhibit 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 23, 1999, by and
between LEXENT INC., a Delaware corporation (the "Company"), and RIF K. HAFFAR
(the "Employee").
W I T N E S S E T H:
WHEREAS the Company desires to induce the Employee to enter
into employment with the Company for the period provided in this Agreement, and
the Employee is willing to accept such employment with the Company on a
full-time basis, all in accordance with the terms and conditions set forth
below;
NOW, THEREFORE, for and in consideration of the premises
hereof and the mutual covenants contained herein, the parties hereto hereby
covenant and agree as follows:
1. Employment.
(a) The Company hereby agrees to employ the Employee, and the
Employee hereby agrees to accept such employment with the Company,
commencing on January 17, 1999 (the "Commencement Date") and continuing
for the period set forth in Section 2 hereof, all upon the terms and
conditions hereinafter set forth.
(b) The Employee affirms and represents that as of the
commencement of his employment by the Company on the Commencement Date,
he will be under no obligation to any former employer or other party
which is in any way inconsistent with, or which imposes any restriction
upon, the Employee's acceptance of employment hereunder with the
Company, the employment of the Employee by the Company, or the
Employee's undertakings under this Agreement. The Company acknowledges
that the Employee and WinStar Wireless, Inc. have entered into a
certain Separation and General Release Agreement, dated October 16,
1999, pursuant to which the Employee has agreed to perform those
services set forth in Schedule 1 hereto and the Company agrees that the
Employee may provide such services so long as the performance thereof
shall not violate any provision of this Agreement.
2. Term of Employment. Unless earlier terminated as provided
in this Agreement, the term of the Employee's employment under this Agreement
shall be for a period beginning on the Commencement Date and ending on January
17, 2004. The period from the Commencement Date until January 17, 2004, or, in
the event that the Employee's employment hereunder is earlier terminated as
provided herein, such shorter period, is hereinafter called the "Employment
Term"(the "Employment Term").
3. Duties. The Employee shall be employed as Executive Vice
President of the Company and Executive Vice President - Marketing & Business
Development of the Company's wholly-owned subsidiary, National Network
Technologies, LLC, a Delaware limited liability company ("NNT"), shall
faithfully perform and discharge such duties as inhere in the positions of
Executive Vice President of the Company and Executive Vice President - Marketing
& Business Development of NNT as may be specified in the By-laws of the Company
or the Limited Liability Company Agreement of NNT with respect to such
positions, and shall also perform and discharge such other duties and
responsibilities consistent with such position as the Board of Directors of the
Company (the "Board of Directors") shall from time to time determine. The
Employee shall report to the Chief Executive Officer of the Company. The
<PAGE> 2
Employee shall perform his duties principally at offices of the Company in New
York City, New York, with such travel to such other locations from time to time
as the Chief Executive Officer may reasonably prescribe. Except as may otherwise
be approved in advance by the Board of Directors, and except during vacation
periods and reasonable periods of absence due to sickness, personal injury or
other disability, the Employee shall devote his full business time throughout
the Employment Term to the services required of him hereunder. The Employee
shall render his business services exclusively to the Company and its
subsidiaries during the Employment Term and shall use his best efforts, judgment
and energy to improve and advance the business and interests of the Company and
its subsidiaries in a manner consistent with the duties of his positions.
4. Compensation.
(a) Salary. As compensation for the performance by the
Employee of the services to be performed by the Employee hereunder
during the Employment Term, the Company shall pay the Employee a base
salary at the annual rate of Two Hundred and Forty Thousand Dollars
($240,000) (said amount, together with any increases thereto as may be
determined from time to time by the Board of Directors in its sole
discretion, being hereinafter referred to as "Salary"). Any Salary
payable hereunder shall be paid in regular intervals in accordance with
the Company's payroll practices from time to time in effect.
(b) Bonus. The Employee shall be eligible to receive bonus
compensation from the Company in respect of each fiscal year (or
portion thereof) occurring during the Employment Term in an amount
targeted at 40% of his Salary (pro rated for any portion of a fiscal
year occurring during the Employment Term) if the Company achieves the
target performance objectives established by the Compensation Committee
of the Board of Directors (the "Compensation Committee") with respect
to such fiscal year. The Employee shall also be eligible to receive
additional bonus compensation from the Company in respect of each
fiscal year (or portion thereof) occurring during the Employment Term
in an amount targeted at 60% of his Salary (prorated for any portion of
a fiscal year occurring during the Employment Term) for exceptional
performance as may be determined by the Compensation Committee in its
sole discretion. In any event, the Employee shall be entitled to
receive an aggregate bonus (not including the Relocation Payments
referred to in (c) below) of not less than $100,000 in respect of the
fiscal year ending December 31, 2000 (pro rated as aforesaid if the
Employment Term ends prior to December 31, 2000).
(c) Relocation Payments. In addition to the compensation
referred to in (a) and (b) above, the Employee shall also be eligible
to receive one-time payments (the "Relocation Payments") consisting of
(i) up to $24,000 for reimbursement of the Employee's expenses relating
to his renting of an apartment in the New York City area for the first
six months of the Employment Term, (ii) up to $10,000 for reimbursement
of other reasonable expenses relating to the Employee's move to the New
York City area and (iii) up to $10,000 for reimbursement of reasonable
closing costs relating to the Employee's purchase of a home in the New
York City area, in each case to be paid by the Company against
submission of appropriate documentation by the Employee in accordance
with the Company's standard policies.
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<PAGE> 3
5. Other Benefits; Options.
(a) General. During the Employment Term, the Employee shall:
(i) be eligible to participate in employee fringe
benefits and pension and/or profit sharing plans that may be provided
by the Company for its senior executive employees in accordance with
the provisions of such plans, as the same may be in effect from time to
time;
(ii) be eligible to participate in any medical and
health plans or other employee welfare benefit plans that may be
provided by the Company for its senior executive employees in
accordance with the provisions of any such plans, as the same may be in
effect from time to time;
(iii) be entitled to the number of paid vacation days
in each calendar year determined by the Company from time to time for
its senior executive officers, provided that such number of paid
vacation days in each calendar year shall not be less than fifteen (15)
work days (three calendar weeks); the Employee shall also be entitled
to all paid holidays given by the Company to its senior executive
officers;
(iv) be entitled to sick leave, sick pay and
disability benefits in accordance with any Company policy that may be
applicable to senior executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable
and necessary out-of-pocket business expenses incurred by the Employee
in the performance of his duties hereunder in accordance with the
Company's normal policies from time to time in effect.
(b) Grant of Initial Options. In connection with the execution
and delivery of this Agreement by the Employee, the Company is granting
to the Employee options ("Initial Options") to purchase 250,000 shares
of Company Common Stock, $.001 par value ("Common Stock"), at a
purchase price of $10.00 per share, of which options to purchase 62,500
shares of Common Stock shall vest immediately and options to purchase
the remaining 187,500 shares of Common Stock will vest in thirty-six
equal increments over the thirty-six month period beginning on the
first anniversary of the Commencement Date, all as provided in the
Stock Option Agreements of even date herewith between the Company and
the Employee.
(c) Grant of Subsequent Options. In connection with his
continued employment by the Company, on the first anniversary of the
Commencement Date, and on each of the subsequent anniversaries thereof
during the Employment Term, the Company agrees to grant the Employee
options ("Subsequent Options") to purchase 10,000 shares of Common
Stock at a purchase price equal to the Fair Market Value (as defined in
(d) below) of the Common Stock on the date of grant, which options
shall vest in twenty-five percent increments over a four-year period
with the first twenty-five percent to vest on the first anniversary of
the date of grant. Each grant of these Subsequent Options shall be
pursuant to specific terms set forth in a stock option agreement
between the Company and the Employee.
(d) Fair Market Value. "Fair Market Value" means as of any
date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without
limitation the
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<PAGE> 4
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market
Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on
such system or exchange (or the exchange with the greatest volume of
trading in Common Stock) on the last market trading day prior to the
day of grant of the particular Subsequent Options and as reported in
the Wall Street Journal or such other source as the Compensation
Committee deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or is regularly
quoted by a recognized securities dealer but selling prices are not
reported, the Fair Market Value of a share of Common Stock shall be the
average between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of grant of the
particular Subsequent Options and as reported in the Wall Street
Journal or such other source as the Compensation Committee deems
reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith
by the Compensation Committee.
6. Confidential Information. The Employee hereby covenants,
agrees and acknowledges as follows:
(a) The Employee has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company and any present or future subsidiaries or affiliates of the
Company (collectively with the Company, the "Companies"), including but
not limited to (i) customer lists; related records and compilations of
information; the identity, lists or descriptions of any new customers,
referral sources or organizations; financial statements; cost reports
or other financial information; contract proposals or bid ding
information; business plans; training and operations methods and
manuals; personnel records; software programs; reports and
correspondence; and management systems, policies or procedures,
including related forms and manuals; (ii) information pertaining to
future developments such as future marketing or acquisition plans or
ideas, and potential new business locations and (iii) all other
tangible and intangible property, which are used in the business and
operations of the Companies but not made public. The information and
trade secrets relating to the business of the Companies described
hereinabove in this paragraph (a) are hereinafter referred to
collectively as the "Confidential Information", provided that the term
Confidential Information shall not include any information (A) that is
or becomes generally publicly available (other than as a result of
violation of this Agreement by the Employee), (B) that the Employee
receives on a nonconfidential basis from a source (other than the
Companies or their representatives) that is not known by him to be
bound by an obligation of secrecy or confidentiality to any of the
Companies or (C) that was in the possession of the Employee prior to
disclosure by the Companies.
(b) The Employee shall not disclose, use or make known for his
or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Employee's duties under this
Agreement. The Employee may disclose Confidential Information when
required by a third party and applicable law or judicial process, but
only after providing immediate notice to the Company of any third
party's request for such information, which notice shall include the
Employee's
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<PAGE> 5
intent to disclose any Confidential Information with respect to such
request.
(c) The Employee acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to seek injunctive relief in addition to any other available
rights and remedies in case of any such breach or threatened breach by
the Employee; provided, however, that nothing contained herein shall be
construed as prohibiting the Companies from pursuing any other rights
and remedies available for any such breach or threatened breach.
(d) The Employee agrees that upon termination of his
employment with the Company for any reason, the Employee shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer discs
and other electronic media).
(e) The obligations of the Employee under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this
Agreement.
(f) Without limiting the generality of Section 12 hereof, the
Employee hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Employee's heirs, successors and
legal representatives.
7. Termination of Employment.
(a) The Employee's employment hereunder shall be terminated
upon the occurrence of any of the following:
(i) death of the Employee;
(ii) the Employee's inability to perform his duties
on account of disability or incapacity for a period of one hundred
eighty (180) or more days, whether or not consecutive, within any
period of twelve (12) consecutive months;
(iii) the Company giving written notice, at any time,
to the Employee that the Employee's employment is being terminated for
"Cause" (as defined in (b) below);
(iv) the Company giving written notice, at any time,
to the Employee that the Employee's employment is being terminated or
is not being renewed, other than pursuant to clause (i), (ii) or (iii)
above ("Without Cause");
(v) the Employee terminates his employment hereunder
because the Company, solely due to an Executive Management Stockholder
Block (as defined in (c) below), fails to consummate an initial public
offering of its Common Stock within one (1) year of the Commencement
Date; or
(vi) the Employee terminates his employment hereunder
for any reason whatsoever (whether by reason of retirement, resignation
or otherwise), other than in accordance with (v) above ("Without Good
Reason").
(b) Cause. The following actions, failures and events by or
affecting the Employee shall constitute "Cause" for termination within
the meaning of clause (iii) of Section 7 (a) above:
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<PAGE> 6
(i) an indictment for or conviction of the Employee
of, or the entering of a plea of nolo contendere by the Employee with
respect to, having committed a felony;
(ii) abuse of controlled substances or alcohol or
acts of dishonesty or moral turpitude by the Employee that are
detrimental to one or more of the Companies;
(iii) acts or omissions by the Employee that the
Employee knew were likely to damage the business of one or more of the
Companies;
(iv) negligence by the Employee in the performance
of, or disregard by the Employee of, his material obligations under
this Agreement or otherwise relating to his employment, which
negligence or disregard continue unremedied for a period of fifteen
(15) days after written notice thereof to the Employee; or
(v) failure by the Employee to obey the reasonable
and lawful orders and policies of the Board of Directors that are
consistent with the provisions of this Agree ment.
(c) Executive Management Stockholder Block. For purposes of
this Agreement, an "Executive Management Stockholder Block" means the
decision by the Company's Executive Management Stockholders (as that
term is defined in the Stockholders Agreement, dated as of July 23,
1998, among the Company and the stockholders party thereto, as the same
may be amended or modified from time to time) to not consent to an
initial public offering by the Company of its Common Stock; provided,
however, that an Executive Management Stockholder Block shall not be
deemed to have occurred if a decision or action by the Board of
Directors or the holders of the Company's Series A Convertible
Preferred Stock, $.001 par value, prevents the consummation of such an
initial public offering.
8. Payments Upon Termination.
(a) Termination Without Cause. In the event that the
Employee's employment is terminated by the Company Without Cause during
the period between the Commencement Date and the date six months
following the Commencement Date (the "Initial Period"), then the
Company shall pay to the Employee, as severance pay or liquidated
damages or both, monthly payments at the rate per annum of his Salary
at the time of such termination for a period of:
(i) eighteen (18) months after such termination if
such termination occurs in the first month of the Initial
Period;
(ii) seventeen (17) months after such termination if
such termination occurs in the second month of the Initial
Period;
(iii) sixteen (16) months after such termination if
such termination occurs in the third month of the Initial
Period;
(iv) fifteen (15) months after such termination if
such termination occurs in the fourth month of the Initial
Period;
(v) fourteen (14) months after such termination if
such termination occurs in the fifth month of the Initial
Period;
(vi) thirteen (13) months after such termination if
such
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<PAGE> 7
termination occurs in the sixth month of the Initial Period;
and
(vii) twelve (12) months after such termination if
such termination occurs after the end of the Initial Period.
(b) Termination by the Employee due to an Executive Management
Stockholder Block. In the event that the Employee's employment is
terminated by the Employee pursuant to clause (v) of Section 7(a) above
during the ninety (90) day period following the date of such Executive
Management Stockholder Block, then:
(i) the Company shall pay to the Employee, as
severance pay or liquidated damages or both, monthly payments
at the rate per annum of his Salary at the time of such
termination for a period of twenty-four (24) months after such
termination; and
(ii) the Company shall, upon the request therefor by
the Employee as described below, purchase up to 62,500 shares
of Common Stock acquired by the Employee pursuant to the
exercise of Initial Options upon the following terms and
conditions (the "Employee's Put"):
(1) The Employee's Put may be exercised by
Employee at any time during the thirty (30) day
period following the Employee's termination by giving
written notice thereof ("Put Notice") to the Company
specifying the amount of shares (up to the maximum
referred to above) of Common Stock the Employee
wishes to sell to the Company (the "Put Securities").
The date of exercise of the Employee's Put shall be
the date of the Put Notice.
(2) Within 30 days following receipt of the
Put Notice, the Company shall deliver to the Employee
a notice (the "Company Notice") stating the purchase
price per share of the Put Securities determined in
accordance with clause (4) hereof and a date and
place for closing of the purchase (the "Put
Closing"), which date shall be within ninety (90)
days after the date the Company receives the Put
Notice or, in the event an appraiser is hired
pursuant to clause (4) hereof, within ninety (90)
days after receipt of such appraiser's determination
of the purchase price of the Put Securities.
(3) At the Put Closing, the Company shall
pay to the Employee the purchase price of the Put
Securities by check or wire transfer. At such Put
Closing, the Employee shall execute and deliver to
the Company such stock powers and such other
instruments of transfer as counsel for the Company
deems necessary to validly and effectively transfer
title to the Put Securities to the Company, free and
clear of any lien, claim or encumbrance.
(4) The purchase price per share of the Put
Securities shall be the Fair Market Value (as defined
in Section 5(d) above) of the Common Stock on the
date of exercise of the Employee's Put. In the event
that such Fair Market Value was determined by the
Compensation Committee as described in Section
5(d)(iii) above, the Employee shall have the right to
disagree with such determination and elect, within
ten (10) days of receipt of the Company
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<PAGE> 8
Notice, to have the Company select a recognized
business appraiser to calculate the purchase price of
the Put Securities which shall be the fair market
value thereof. The determination of the purchase
price by such appraiser will be binding on both
parties. All costs and expenses of the appraisal,
including, without limitation, all fees of the
appraiser, shall be borne by the Company.
(c) Payments Limited. Notwithstanding anything to the contrary
expressed or implied herein, except as required by applicable law and
except as set forth in Sections 8(a) and (b) above, neither the Company
nor any of its affiliates shall be obligated to make any payments to
the Employee or on his behalf of whatever kind or nature by reason of
the Employee's cessation of employment (including, without limitation,
by reason of termination of the Employee's employment by the Company's
for Cause, Without Cause or otherwise), other than (i) such amounts, if
any, of his Salary as shall have accrued and remained unpaid as of the
date of said cessation and (ii) such other amounts, if any, which may
be then otherwise payable to the Employee pursuant to the terms of the
Company's benefits plans or pursuant to clause (v) of Section 5(a)
above.
(d) Interest. No interest shall accrue on or be paid with
respect to any portion of any payments under this Section 8.
9. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder
shall be assignable by the Employee or his beneficiaries or legal
representatives without the Company's prior written consent; provided,
however, that nothing in this Section 9(a) shall preclude the Employee
from designating a beneficiary to receive any benefit payable hereunder
upon his death or incapacity. This Agreement may not be assigned by the
Company except with the Employee's prior written consent, provided,
however, that the Company may assign this Agreement to an affiliate of
the Company with the financial resources to fulfill the Company's
obligations hereunder.
(b) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to exclusion, attachment, levy or similar process or
to assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of no
effect.
10. Restrictive Covenants.
(a) Competition. During the Employment Term and, in the event
the Employee's employment is terminated, during the period (the
"Applicable Continuation Period") following such termination and
continuing until (i) the last payment is made to the Employee pursuant
to Section 8(a) or (b) hereof, as the case may be, or (ii) in the case
of a termination of the Employee's employment pursuant to Section
7(a)(iii) or (vi) hereof, the first anniversary of the date of such
termination, the Employee will not directly or indirectly (as a
director, officer, executive employee, manager, consultant, independent
contractor, advisor or otherwise) engage in competition with, or own
any interest in, perform any services for, participate in or be
connected with any business or organization which engages in
competition with any of the Companies within the meaning of Section
10(d), provided, however, that the provisions of this Section 10(a)
shall not be deemed to
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prohibit the Employee's ownership of not more than two percent (2%) of
the total shares of all classes of stock outstanding of any publicly
held company, or ownership, whether through direct or indirect stock
holdings or otherwise, of not more than one percent (1%) of any other
business.
(b) Non-Solicitation. During the Employment Term and during
the Applicable Continuation Period, the Employee will not directly or
indirectly induce or attempt to induce any employee of any of the
Companies to leave the employ of the Company or such subsidiary or
affiliate, or in any way interfere with the relationship between any of
the Companies and any employee thereof.
(c) Non-Interference. During the Employment Term and during
the Applicable Continuation Period, the Employee will not directly or
indirectly hire, engage, send any work to, place orders with, or in any
manner be associated with any supplier, contractor, subcontractor or
other business relation of any of the Companies if such action by him
would have an adverse effect on the business, assets or financial
condition of any of the Companies, or materially interfere with the
relationship between any such person or entity and any of the
Companies.
(d) Certain Definitions.
(i) For purposes of this Section 10, a person or
entity (including, without limitation, the Employee) shall be deemed to
be a competitor of one or more of the Companies, or a person or entity
(including, without limitation, the Employee) shall be deemed to be
engaging in competition with one or more of the Companies, if such
person or entity conducts, or, to the knowledge of the Employee, plans
to conduct, the Specified Business (as hereinafter defined) as a
significant portion of its business in any of the markets served by the
Companies or, in the case of a person or entity pursuing a business
strategy of providing telecommunications infrastructure services
anywhere in the continental United States.
(ii) For purposes of this Agreement, "Specified
Business" means (A) providing outsourced telecommunications
infrastructure services to local or long distance telecommunications
providers or engaging in any business conducted by the Company at the
time of termination of the Employee's employment with the Company or
(B) conducting, operating, carrying out or engaging in the business of
managing any entity described in clause (A).
(e) Certain Representations of the Employee. In connection
with the foregoing provisions of this Section 10, the Employee
represents that his experience, capabilities and circumstances are such
that such provisions will not prevent him from earning a livelihood.
The Employee further agrees that the limitations set forth in this
Section 10 (including, without limitation, time and territorial
limitations) are reasonable and properly required for the adequate
protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Employee in this
Section 10 (and in Section 6 hereof) shall survive the expiration or
termination of this Agreement.
(f) Injunctive Relief. The Employee acknowledges and agrees
that a remedy at law for any breach or threatened breach of the
provisions of Section 10 hereof would be inadequate and, therefore,
agrees that the Company and any of its subsidiaries or affiliates shall
be entitled to seek injunctive relief in addition to any other
available
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<PAGE> 10
rights and remedies in cases of any such breach or threatened breach;
provided, however, that nothing contained herein shall be construed as
prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened
breach.
11. Representations and Warranties. The Employee represents
and warrants that he is not subject to or a party to any agreement, contract,
covenants, order or other restriction which in any way prohibits, restricts or
impairs the Employee's ability to enter into this Agreement and carry out his
duties and obligations hereunder. Each party hereto represents and warrants to
the other that (i) each has the full legal right and power and all authority and
approvals required to enter into, execute and deliver this Agreement and to
perform fully all of his or its obligations hereunder; and (ii) this Agreement
has been duly executed and delivered and constitutes a valid and binding
obligation of each party, enforceable in accordance with its terms.
12. Binding Effect. Without limiting or diminishing the effect
of Section 9 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
13. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Employee, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto, provided, however, that any notice sent by certified or registered mail
shall be deemed delivered on the date of delivery as evidenced by the return
receipt.
14. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
15. Severability. The Employee agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 10 hereof is void or constitutes an unreasonable restriction
against the Employee, the provisions of such Section 6 or 10 shall not be
rendered void but shall apply with respect to such extent as such court may
judicially determine constitutes a reasonable restriction under the
circumstances. If any part of this Agreement other than Section 6 or 10 is held
by a court of competent jurisdiction to be invalid, illegible or incapable of
being enforced in whole or in part by reason of any rule of law or public
policy, such part shall be deemed to be severed from the remainder of this
Agreement for the purpose only of the particular legal proceedings in question
and all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
16. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
17. Entire Agreement; Modifications. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and
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written, between the parties hereto with respect to the subject matter hereof.
This Agreement may be modified or amended only by an instrument in writing
signed by both parties hereto.
18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the Company and the Employee have duly
executed and delivered this Agreement as of the day and year first above
written.
LEXENT INC.
By: /s/ Kevin O'Kane
-----------------------------------
- ------------- Name: Kevin O'Kane
Title: C.O.O
/s/ Rif K. Haffar
--------------------------------------
- ------------- Rif K. Haffar
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<PAGE> 13
SCHEDULE 1
The Separation and General Release Agreement between the
Employee and WinStar Wireless, Inc. ("WinStar") requires that the Employee for
the period through and including October 31, 2000 make himself reasonably
available upon WinStar's request to assist WinStar and its affiliates'
management in network or other operational matters and to respond to information
and other similar requests by WinStar. If such activities require travel to
out-of-state locations (the state being Virginia), such assistance shall be
arranged at times mutually convenient to both the Employee and WinStar. If the
Employee obtains full-time employment prior to October 31, 2000, the Employee
must continue to make himself available, upon WinStar's reasonable request, to
respond to information and other similar requests by WinStar through October 31,
2000.
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<PAGE> 1
Ex 10.11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 20, 1999, by
and between LEXENT INC., a Delaware corporation (the "Company"),
and VICTOR P. DEJOY, SR. (the "Employee").
W I T N E S S E T H:
WHEREAS the Company desires to induce the Employee to enter
into employment with the Company for the period provided in this Agreement, and
the Employee is willing to accept such employment with the Company on a
full-time basis, all in accordance with the terms and conditions set forth
below;
NOW, THEREFORE, for and in consideration of the premises
hereof and the mutual covenants contained herein, the parties hereto hereby
covenant and agree as follows:
1. Employment.
(a) The Company hereby agrees to employ the Employee, and the
Employee hereby agrees to accept such employment with the Company,
commencing on December 20, 1999 (the "Commencement Date") and
continuing for the period set forth in Section 2 hereof, all upon the
terms and conditions hereinafter set forth.
(b) The Employee affirms and represents that as of the
commencement of his employment by the Company on the Commencement Date,
he will be under no obligation to any former employer or other party
which is in any way inconsistent with, or which imposes any restriction
upon, the Employee's acceptance of employment hereunder with the
Company, the employment of the Employee by the Company, or the
Employee's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as provided
in this Agreement, the term of the Employee's employment under this Agreement
shall be for a period beginning on the Commencement Date and ending on December
31, 2003. The period from the Commencement Date until December 31, 2003, or, in
the event that the Employee's employment hereunder is earlier terminated as
provided herein, such shorter period, is hereinafter called the "Employment
Term"(the "Employment Term").
3. Duties. The Employee shall be employed as Executive Vice
President of the Company and President of the Company's wholly-owned subsidiary,
National Network Technologies, LLC, a Delaware limited liability company
("NNT"), shall faithfully perform and discharge
<PAGE> 2
such duties as inhere in the positions of Executive Vice President of
the Company and President of NNT as may be specified in the By-laws of the
Company or the Limited Liability Company Agreement of NNT with respect to such
positions, and shall also perform and discharge such other duties and
responsibilities consistent with such position as the Board of Directors of the
Company (the "Board of Directors") shall from time to time determine. The
Employee shall report to the Chief Executive Officer of the Company. The
Employee shall perform his duties principally at offices of the Company in New
York City, New York, with such travel to such other locations from time to time
as the Chief Executive Officer may reasonably prescribe. Except as may otherwise
be approved in advance by the Board of Directors, and except during vacation
periods and reasonable periods of absence due to sickness, personal injury or
other disability, the Employee shall devote his full business time throughout
the Employment Term to the services required of him hereunder. The Employee
shall render his business services exclusively to the Company and its
subsidiaries during the Employment Term and shall use his best efforts, judgment
and energy to improve and advance the business and interests of the Company and
its subsidiaries in a manner consistent with the duties of his positions.
4. Compensation.
(a) Salary. As compensation for the performance by the
Employee of the services to be performed by the Employee hereunder
during the Employment Term, the Company shall pay the Employee a base
salary at the annual rate of Two Hundred and Forty Thousand Dollars
($240,000) (said amount, together with any increases thereto as may be
determined from time to time by the Board of Directors in its sole
discretion, being hereinafter referred to as "Salary"). Any Salary
payable hereunder shall be paid in regular intervals in accordance with
the Company's payroll practices from time to time in effect.
(b) Bonus. The Employee shall be eligible to receive bonus
compensation from the Company in respect of each fiscal year (or
portion thereof) occurring during the Employment Term in an amount
targeted at 40% of his Salary (pro rated for any portion of a fiscal
year occurring during the Employment Term) if the Company achieves the
target performance objectives established by the Compensation Committee
of the Board of Directors (the "Compensation Committee") with respect
to such fiscal year. The Employee shall also be eligible to receive
additional bonus compensation from the Company in respect of each
fiscal year (or portion thereof) occurring during the Employment Term
for exceptional performance as may be determined by the Compensation
Committee in its sole discretion. In any event, the Employee shall be
entitled to receive an aggregate bonus (in addition to the Initial
Payment discussed in (c) below) of not less than $115,000 in respect of
the fiscal year ending December 31, 2000 (pro rated as aforesaid if the
Employment Term ends prior to December 31, 2000).
(c) Initial Payment. In connection with the execution and
delivery by the Employee of this Agreement, the Company shall pay the
Employee a one-time bonus in
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<PAGE> 3
the amount of $50,000 (the "Initial Payment") in respect of the fiscal
year ending December 31, 2000 on January 15, 2000. The Employee shall
not receive any bonus in respect of the fiscal year ending December 31,
1999.
5. Other Benefits; Options.
(a) General. During the Employment Term, the Employee
shall:
(i) be eligible to participate in employee fringe
benefits and pension and/or profit sharing plans that may be provided
by the Company for its senior executive employees in accordance with
the provisions of such plans, as the same may be in effect from time to
time;
(ii) be eligible to participate in any medical and
health plans or other employee welfare benefit plans that may be
provided by the Company for its senior executive employees in
accordance with the provisions of any such plans, as the same may be in
effect from time to time;
(iii) be entitled to the number of paid vacation days
in each calendar year determined by the Company from time to time for
its senior executive officers, provided that such number of paid
vacation days in each calendar year shall not be less than fifteen (15)
work days (three calendar weeks); the Employee shall also be entitled
to all paid holidays given by the Company to its senior executive
officers;
(iv) be entitled to sick leave, sick pay and
disability benefits in accordance with any Company policy that may be
applicable to senior executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable
and necessary out-of-pocket business expenses incurred by the Employee
in the performance of his duties hereunder in accordance with the
Company's normal policies from time to time in effect.
(b) Grant of Initial Options. In connection with the execution
and delivery of this Agreement by the Employee, the Company is granting
to the Employee options ("Initial Options") to purchase 350,000 shares
of Company Common Stock, $.001 par value ("Common Stock"), at a
purchase price of $10.00 per share, of which options to purchase
100,000 shares of Common Stock shall vest immediately and options to
purchase the remaining 250,000 shares of Common Stock will vest in
thirty-six equal increments over the thirty-six month period beginning
on the first anniversary of the Commencement Date, all as provided in
the Stock Option Agreements of even date herewith between the Company
and the Employee.
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<PAGE> 4
(c) Grant of Subsequent Options. In connection with his
continued employment by the Company, on the first anniversary of the
Commencement Date, and on each of the subsequent anniversaries thereof
during the Employment Term, the Company agrees to grant the Employee
options ("Subsequent Options") to purchase at least 15,000 shares of
Common Stock at a purchase price equal to the Fair Market Value (as
defined in (d) below) of the Common Stock on the date of grant, which
options shall vest in twenty-five percent increments over a four-year
period with the first twenty-five percent to vest on the first
anniversary of the date of grant. Each grant of these Subsequent
Options shall be pursuant to specific terms set forth in a stock option
agreement between the Company and the Employee.
(d) Fair Market Value. "Fair Market Value" means as of any
date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without
limitation the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the
Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest
volume of trading in Common Stock) on the last market trading day prior
to the day of grant of the particular Subsequent Options and as
reported in the Wall Street Journal or such other source as the
Compensation Committee deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or is regularly
quoted by a recognized securities dealer but selling prices are not
reported, the Fair Market Value of a share of Common Stock shall be the
average between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of grant of the
particular Subsequent Options and as reported in the Wall Street
Journal or such other source as the Compensation Committee deems
reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith
by the Compensation Committee.
6. Confidential Information. The Employee hereby covenants,
agrees and acknowledges as follows:
(a) The Employee has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company and any present or future subsidiaries or affiliates of the
Company (collectively with the Company, the "Companies"), including but
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<PAGE> 5
not limited to (i) customer lists; related records and compilations of
information; the identity, lists or descriptions of any new customers,
referral sources or organizations; financial statements; cost reports
or other financial information; contract proposals or bidding
information; business plans; training and operations methods and
manuals; personnel records; software programs; reports and
correspondence; and management systems, policies or procedures,
including related forms and manuals; (ii) information pertaining to
future developments such as future marketing or acquisition plans or
ideas, and potential new business locations and (iii) all other
tangible and intangible property, which are used in the business and
operations of the Companies but not made public. The information and
trade secrets relating to the business of the Companies described
hereinabove in this paragraph (a) are hereinafter referred to
collectively as the "Confidential Information", provided that the term
Confidential Information shall not include any information (A) that is
or becomes generally publicly available (other than as a result of
violation of this Agreement by the Employee), (B) that the Employee
receives on a nonconfidential basis from a source (other than the
Companies or their representatives) that is not known by him to be
bound by an obligation of secrecy or confidentiality to any of the
Companies or (C) that was in the possession of the Employee prior to
disclosure by the Companies.
(b) The Employee shall not disclose, use or make known for his
or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Employee's duties under this
Agreement. The Employee may disclose Confidential Information when
required by a third party and applicable law or judicial process, but
only after providing immediate notice to the Company of any third
party's request for such information, which notice shall include the
Employee's intent to disclose any Confidential Information with respect
to such request.
(c) The Employee acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to seek injunctive relief in addition to any other available
rights and remedies in case of any such breach or threatened breach by
the Employee; provided, however, that nothing contained herein shall be
construed as prohibiting the Companies from pursuing any other rights
and remedies available for any such breach or threatened breach.
(d) The Employee agrees that upon termination of his
employment with the Company for any reason, the Employee shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer discs
and other electronic media).
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<PAGE> 6
(e) The obligations of the Employee under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this
Agreement.
(f) Without limiting the generality of Section 11 hereof, the
Employee hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Employee's heirs, successors and
legal representatives.
7. Termination of Employment.
(a) The Employee's employment hereunder shall be terminated
upon the occurrence of any of the following:
(i) death of the Employee;
(ii) the Employee's inability to perform his duties
on account of disability or incapacity for a period of one hundred
eighty (180) or more days, whether or not consecutive, within any
period of twelve (12) consecutive months;
(iii) the Company giving written notice, at any time,
to the Employee that the Employee's employment is being terminated for
"Cause" (as defined in (b) below);
(iv) the Company giving written notice, at any time,
to the Employee that the Employee's employment is being terminated or
is not being renewed, other than pursuant to clause (i), (ii) or (iii)
above ("Without Cause");
(v) the Employee terminates his employment hereunder
because the Company, solely due to an Executive Management Stockholder
Block (as defined in (c) below), fails to consummate an initial public
offering of its Common Stock within one (1) year of the Commencement
Date; or
(vi) the Employee terminates his employment hereunder
for any reason whatsoever (whether by reason of retirement, resignation
or otherwise), other than in accordance with (v) above ("Without Good
Reason").
(b) Cause. The following actions, failures and events by or
affecting the Employee shall constitute "Cause" for termination within
the meaning of clause (iii) of Section 7 (a) above:
(i) an indictment for or conviction of the Employee
of, or the entering of a plea of nolo contendere by the Employee with
respect to, having committed a felony;
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<PAGE> 7
(ii) abuse of controlled substances or alcohol or
acts of dishonesty or moral turpitude by the Employee that are
detrimental to one or more of the Companies;
(iii) acts or omissions by the Employee that the
Employee knew were likely to damage the business of one or more of the
Companies;
(iv) negligence by the Employee in the performance
of, or disregard by the Employee of, his material obligations under
this Agreement or otherwise relating to his employment, which
negligence or disregard continue unremedied for a period of fifteen
(15) days after written notice thereof to the Employee; or
(v) failure by the Employee to obey the reasonable
and lawful orders and policies of the Board of Directors that are
consistent with the provisions of this Agreement.
(c) Executive Management Stockholder Block. For purposes of
this Agreement, an "Executive Management Stockholder Block" means the
decision by the Company's Executive Management Stockholders (as that
term is defined in the Stockholders Agreement, dated as of July 23,
1998, among the Company and the stockholders party thereto, as the same
may be amended or modified from time to time) to not consent to an
initial public offering by the Company of its Common Stock; provided,
however, that an Executive Management Stockholder Block shall not be
deemed to have occurred if a decision or action by the Board of
Directors or the holders of the Company's Series A Convertible
Preferred Stock, $.001 par value, prevents the consummation of such an
initial public offering.
8. Payments Upon Termination.
(a) Termination Without Cause. In the event that the
Employee's employment is terminated by the Company Without Cause during
the period between the Commencement Date and the date six months
following the Commencement Date (the "Initial Period"), then the
Company shall pay to the Employee, as severance pay or liquidated
damages or both, monthly payments at the rate per annum of his Salary
at the time of such termination for a period of:
(i) eighteen (18) months after such termination if
such termination occurs in the first month of the Initial
Period;
(ii) seventeen (17) months after such termination if
such termination occurs in the second month of the Initial
Period;
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<PAGE> 8
(iii) sixteen (16) months after such termination if
such termination occurs in the third month of the Initial
Period;
(iv) fifteen (15) months after such termination if
such termination occurs in the fourth month of the Initial
Period;
(v) fourteen (14) months after such termination if
such termination occurs in the fifth month of the Initial
Period;
(vi) thirteen (13) months after such termination if
such termination occurs in the sixth month of the Initial
Period; and
(vii) twelve (12) months after such termination if
such termination occurs after the end of the Initial Period.
(b) Termination by the Employee due to an Executive Management
Stockholder Block. In the event that the Employee's employment is
terminated by the Employee pursuant to clause (v) of Section 7(a) above
during the ninety (90) day period following the date of such Executive
Management Stockholder Block, then:
(i) the Company shall pay to the Employee, as
severance pay or liquidated damages or both, monthly payments
at the rate per annum of his Salary at the time of such
termination for a period of twenty-four (24) months after such
termination; and
(ii) the Company shall, upon the request therefor by
the Employee as described below, purchase up to 100,000 shares
of Common Stock acquired by the Employee pursuant to the
exercise of Initial Options upon the following terms and
conditions (the "Employee's Put"):
(1) The Employee's Put may be exercised by
Employee at any time during the thirty (30) day
period following the Employee's termination by giving
written notice thereof ("Put Notice") to the Company
specifying the amount of shares (up to the maximum
referred to above) of Common Stock the Employee
wishes to sell to the Company (the "Put Securities").
The date of exercise of the Employee's Put shall be
the date of the Put Notice.
(2) Within 30 days following receipt of the
Put Notice, the Company shall deliver to the Employee
a notice (the "Company Notice") stating the purchase
price per share of the Put Securities determined in
accordance with clause (4) hereof and a date and
place for closing of the purchase (the
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<PAGE> 9
"Put Closing"), which date shall be within ninety
(90) days after the date the Company receives the Put
Notice or, in the event an appraiser is hired
pursuant to clause (4) hereof, within ninety (90)
days after receipt of such appraiser's determination
of the purchase price of the Put Securities.
(3) At the Put Closing, the Company shall
pay to the Employee the purchase price of the Put
Securities by check or wire transfer. At such Put
Closing, the Employee shall execute and deliver to
the Company such stock powers and such other
instruments of transfer as counsel for the Company
deems necessary to validly and effectively transfer
title to the Put Securities to the Company, free and
clear of any lien, claim or encumbrance.
(4) The purchase price per share of the Put
Securities shall be the Fair Market Value (as defined
in Section 5(d) above) of the Common Stock on the
date of exercise of the Employee's Put. In the event
that such Fair Market Value was determined by the
Compensation Committee as described in Section
5(d)(iii) above, the Employee shall have the right to
disagree with such determination and elect, within
ten (10) days of receipt of the Company Notice, to
have the Company select a recognized business
appraiser to calculate the purchase price of the Put
Securities which shall be the fair market value
thereof. The determination of the purchase price by
such appraiser will be binding on both parties. All
costs and expenses of the appraisal, including,
without limitation, all fees of the appraiser, shall
be borne by the Company.
(c) Payments Limited. Notwithstanding anything to the contrary
expressed or implied herein, except as required by applicable law and
except as set forth in Sections 8(a) and (b) above, neither the Company
nor any of its affiliates shall be obligated to make any payments to
the Employee or on his behalf of whatever kind or nature by reason of
the Employee's cessation of employment (including, without limitation,
by reason of termination of the Employee's employment by the Company
for Cause, Without Cause or otherwise), other than (i) such amounts, if
any, of his Salary as shall have accrued and remained unpaid as of the
date of said cessation and (ii) such other amounts, if any, which may
be then otherwise payable to the Employee pursuant to the terms of the
Company's benefits plans or pursuant to clause (v) of Section 5(a)
above.
(d) Interest. No interest shall accrue on or be paid with
respect to any portion of any payments under this Section 8.
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<PAGE> 10
9. Non-Assignability.
(a) Neither this Agreement nor any right or interest
hereunder shall be assignable by the Employee or his
beneficiaries or legal representatives without the Company's prior
written consent; provided, however, that nothing in this Section 9(a)
shall preclude the Employee from designating a beneficiary to receive
any benefit payable hereunder upon his death or incapacity. This
Agreement may not be assigned by the Company except with the Employee's
prior written consent, provided, however, that the Company may assign
this Agreement to an affiliate of the Company with the financial
resources to fulfill the Company's obligations hereunder.
(b) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to exclusion, attachment, levy or similar process or
to assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of no
effect.
10. Restrictive Covenants.
(a) Competition. During the Employment Term and, in the event
the Employee's employment is terminated, during the period (the
"Applicable Continuation Period") following such termination and
continuing until (i) the last payment is made to the Employee pursuant
to Section 8(a) or (b) hereof, as the case may be, or (ii) in the case
of a termination of the Employee's employment pursuant to Section
7(a)(iii) or (vi) hereof, the first anniversary of the date of such
termination, the Employee will not directly or indirectly (as a
director, officer, executive employee, manager, consultant, independent
contractor, advisor or otherwise) engage in competition with, or own
any interest in, perform any services for, participate in or be
connected with any business or organization which engages in
competition with any of the Companies within the meaning of Section
10(d), provided, however, that the provisions of this Section 10(a)
shall not be deemed to prohibit the Employee's ownership of not more
than two percent (2%) of the total shares of all classes of stock
outstanding of any publicly held company, or ownership, whether through
direct or indirect stock holdings or otherwise, of not more than one
percent (1%) of any other business.
(b) Non-Solicitation. During the Employment Term and during
the Applicable Continuation Period, the Employee will not directly or
indirectly induce or attempt to induce any employee of any of the
Companies to leave the employ of the Company or such subsidiary or
affiliate, or in any way interfere with the relationship between any of
the Companies and any employee thereof.
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<PAGE> 11
(c) Non-Interference. During the Employment Term and during
the Applicable Continuation Period, the Employee will not directly or
indirectly hire, engage, send any work to, place orders with, or in any
manner be associated with any supplier, contractor, subcontractor or
other business relation of any of the Companies if such action by him
would have an adverse effect on the business, assets or financial
condition of any of the Companies, or materially interfere with the
relationship between any such person or entity and any of the
Companies.
(d) Certain Definitions.
(i) For purposes of this Section 10, a person or
entity (including, without limitation, the Employee) shall be deemed to
be a competitor of one or more of the Companies, or a person or entity
(including, without limitation, the Employee) shall be deemed to be
engaging in competition with one or more of the Companies, if such
person or entity conducts, or, to the knowledge of the Employee, plans
to conduct, the Specified Business (as hereinafter defined) as a
significant portion of its business in any of the markets served by the
Companies or, in the case of a person or entity pursuing a business
strategy of providing telecommunications infrastructure services
anywhere in the continental United States.
(ii) For purposes of this Agreement, "Specified
Business" means (A) providing outsourced telecommunications
infrastructure services to local or long distance telecommunications
providers or engaging in any business conducted by the Company at the
time of termination of the Employee's employment with the Company or
(B) conducting, operating, carrying out or engaging in the business of
managing any entity described in clause (A).
(e) Certain Representations of the Employee. In connection
with the foregoing provisions of this Section 10, the Employee
represents that his experience, capabilities and circumstances are such
that such provisions will not prevent him from earning a livelihood.
The Employee further agrees that the limitations set forth in this
Section 10 (including, without limitation, time and territorial
limitations) are reasonable and properly required for the adequate
protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Employee in this
Section 10 (and in Section 6 hereof) shall survive the expiration or
termination of this Agreement.
(f) Injunctive Relief. The Employee acknowledges and agrees
that a remedy at law for any breach or threatened breach of the
provisions of Section 10 hereof would be inadequate and, therefore,
agrees that the Company and any of its subsidiaries or affiliates shall
be entitled to seek injunctive relief in addition to any other
available rights and remedies in cases of any such breach or threatened
breach; provided, however, that nothing contained herein shall be
construed as prohibiting the Company or any of its
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<PAGE> 12
affiliates from pursuing any other rights and remedies available for
any such breach or threatened breach.
11. Binding Effect. Without limiting or diminishing the effect
of Section 9 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
12. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Employee, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto, provided, however, that any notice sent by certified or registered mail
shall be deemed delivered on the date of delivery as evidenced by the return
receipt.
13. Law Governing. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York.
14. Severability. The Employee agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 10 hereof is void or constitutes an unreasonable restriction
against the Employee, the provisions of such Section 6 or 10 shall not be
rendered void but shall apply with respect to such extent as such court may
judicially determine constitutes a reasonable restriction under the
circumstances. If any part of this Agreement other than Section 6 or 10 is held
by a court of competent jurisdiction to be invalid, illegible or incapable of
being enforced in whole or in part by reason of any rule of law or public
policy, such part shall be deemed to be severed from the remainder of this
Agreement for the purpose only of the particular legal proceedings in question
and all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
15. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
16. Entire Agreement; Modifications. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may be modified or amended only by an instrument in
writing signed by both parties hereto.
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17. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company and the Employee have duly
executed and delivered this Agreement as of the day and year first above
written.
LEXENT INC.
By: /s/ Kevin O'Kane
--------------------------------------
Name:
Title:
/s/ Victor P. DeJoy, Sr.
--------------------------------------
Victor P. DeJoy, Sr.
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EXHIBIT 10.12
EMPLOYMENT AGREEMENT
AGREEMENT by and between LEXENT INC., a Delaware corporation
(the "Company"), and ALF T. HANSEN (the "Executive"), dated as of the 9th day of
January, 2000.
1. Employment Period.
(a) The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, pursuant to the
terms and conditions set forth in this Agreement, for the period commencing
February 1, 2000 (the "Commencement Date") and ending on the third anniversary
of the Commencement Date, unless the Executive's employment terminates earlier
pursuant to Section 4 of this Agreement (the "Employment Period").
(b) The Contract shall be automatically extended for successive one
year periods unless either party gives one hundred and twenty (120) days advance
written notice prior to the end of the original Employment Period or any
extension thereof.
2. Position and Duties.
(a) During the Employment Period, the Executive shall be employed as
the President and Chief Executive Officer ("CEO") of the Company. In addition,
the Executive shall be nominated to the Board of Directors of the Company. The
Executive shall have such powers and perform such duties as are customary for a
CEO at the Company and from the Commencement Date shall report solely to the
Chairman and the Board of Directors. Executive's job description is attached
hereto as Exhibit A together with a list of employees who will report to
Executive.
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(b) During the Employment Period, and excluding any periods of
vacation, holiday, personal leave and sick leave to which the Executive is
entitled, the Executive shall devote the Executive's full business time,
attention and ability to the business and affairs of the Company and shall use
the Executive"s best efforts to carry out the Executive"s responsibilities
faithfully and efficiently in a professional manner. It shall not be considered
a violation of the foregoing for the Executive to (a) serve on corporate or
civic boards approved in writing by the Company (which approval shall not be
unreasonably withheld) or on charitable boards or committees (b) deliver
lectures or fulfill speaking engagements and (c) manage personal investments, so
long as the activities referred to in clauses (a) through (c) above do not
substantially interfere with the performance of the Executive's responsibilities
as CEO of the Company in accordance with this Agreement.
(c) The Executive's primary office shall be located in New York;
provided, that the Executive's primary office may be relocated in connection
with the relocation of the Company's headquarters within Connecticut, New
Jersey, or New York, subject to reimbursement for all of Executive's reasonable
expenses in connection with any move he is required to make. In addition, the
Executive shall be reimbursed for all reasonable moving expenses, approved in
writing, in connection with any relocation from New Jersey to New York. Unless
and until Executive relocates the Company shall provide at its expense suitable
living accommodations in Manhattan and shall reimburse Executive for meals and
related expenses.
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3. Compensation.
(a) Base Salary. During the first year of the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary") of
$300,000, payable pursuant to the Company's normal payroll practices. Effective
as of the first anniversary date of Employment and each succeeding anniversary
date, the Annual Base Salary then in effect shall be reviewed by the
Compensation Committee of the Board of Directors of the Company ("Compensation
Committee") and increased (but not decreased) in its sole discretion based upon
the performance of the Executive and the Company and the base salary (and
raises) paid by comparable companies to the CEO (the "peer executives"). In any
event Executive"s base salary shall be increased as of any anniversary date by a
minimum of 5% per annum.
(b) Annual Bonus. For each fiscal year or part thereof of the Company
during the Employment Period, if the target performance goals communicated in
writing by the Chairman to the Executive for the Company's fiscal year are met,
the Executive's annual target bonus shall be equal to 100% of the Annual Base
Salary paid during such fiscal year (the "Target Bonus") and shall be reduced
and increased in accordance with an appropriate payout curve (established
annually by the Compensation Committee after consultation with the Executive) if
such target performance goals are not met or are exceeded. After the first full
fiscal year of the Company during the Employment Period, the Executive's Target
Bonus shall be reviewed and set by the Compensation Committee in light of
performance goals determined in good faith by the Compensation Committee,
communicated in writing by the Committee to the Executive and in accordance with
the principals set forth in Section 3 (a) above for salary increases.
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The Executive shall receive on the Commencement Date a sign on bonus of
$300,000. This bonus shall be returned to the Company on a ratable basis if the
Executive's employment is terminated by him without Good Reason, or by the
Company for Cause as those latter terms are hereinafter defined, within the
first twelve (12) months of the Employment Term.
(c) Benefit Plans. The Executive shall be treated in the same manner
as, and shall be entitled to such benefits and other perquisites and terms and
conditions of employment no less favorable than those provided to the peer
senior executives as determined by the Compensation Committee.
(d) Long-Term Incentives.
(i) The Executive shall receive an initial grant of a Company stock
option to purchase 830,000 shares of Company common stock, subject to Rule 144
of the Securities and Exchange Act, as amended (the "Act") on the Commencement
Date ("Initial Option Grant"). The exercise price shall be equal to $10.00 per
share. Such Initial Option Grant shall vest as follows:
A. 315,416 shares of such grant shall vest immediately,
B. The remaining shares of such grant shall vest 21,441 shares
per month for 24 months commencing on the month coterminous with the
first anniversary of the Commencement Date.
(ii) On the first and second anniversaries of the Commencement
Date, the Company shall make additional option grants commensurate with that of
the other peer senior executives as determined by the Compensation Committee
("Additional Option Grants"), provided, however, that each such grant shall be
for not less than 200,000 shares if the Fair
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Market Value of the Company's common stock is then less than $30 per share
(adjusted equitably for stock splits, combinations and the like), shall be
restricted by Rule 144 of the Act, and shall be at a purchase price equal to the
then Fair Market Value of the Company's common stock on the date of grant. Such
Additional Option Grants shall vest in the same time manner as provided above
for the Initial Option Grant unless the Compensation Committee shall provide a
shorter vesting period.
Each grant of stock options shall be designated as incentive stock
options to the maximum extent permitted by the Internal Revenue Code of 1986, as
amended, and the Company's 1998 Stock Option Plan, as amended, and the remainder
shall be designated as non-qualified stock option.
For purposes of this Agreement, "Fair Market Value" means as of any
date the value of the Common Stock determined as follows:
A. If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of Common Stock
shall be the average of the opening and closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such system or exchange
(or the exchange with the greatest volume of trading in Common Stock) on the
last market trading day prior to the day of grant of the particular Additional
Option Grants and as reported in the Wall Street Journal or such other source as
the Compensation Committee deems reliable;
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B. If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the average between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
grant of the particular Additional Option Grants and as reported in the Wall
Street Journal or such other source as the Compensation Committee deems
reliable; or
C. In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Compensation
Committee, based upon the advice of a neutral appraiser if the Executive so
requests.
(e) Expenses. During the Employment Period, the Executive shall be
entitled to receive reimbursement for all reasonable business expenses incurred
by the Executive in carrying out the Executive's duties under this Agreement in
accordance with the policies of the Company, provided that the Executive
complies with the policies of the Company for submission of expense reports,
receipts, or similar documentation of such expenses as promulgated from time to
time by the Company.
(f) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation equal to that of peer senior executives as set by the
Compensation Committee from time to time but in no event less than five (5)
weeks.
4. Termination of Employment.
(a) Death or Disability. The Executive"s employment shall terminate
automatically upon the Executive"s death during the Employment Period. The
Executive"s
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employment under this Agreement shall terminate for "Disability" if,
during the Employment Term Executive, in the reasonable and good faith judgment
of the Compensation Committee, has failed to perform all his duties under this
Agreement on account of illness or physical or mental incapacity, and such
illness or incapacity continues for a period of more than six (6) consecutive
months.
(b) By the Company. The Company may terminate the Executive"s
employment during the Employment Period for Cause or without Cause. For purposes
of this Agreement, "Cause" shall mean the Executive's (i) conviction of or plea
of nolo contendere to a felony; (ii) willful misconduct that is materially
injurious to the Company; (iii) failure to undertake communicated directives on
material business matters despite written instruction to do so by the Board of
Directors or the Chairman of the Company; or (iv) any willful material breach of
this Agreement which has resulted in material injury to the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause without (a) no less than ten (10) days prior
written notice to the Executive setting forth the reasons for the Company"s
intention to terminate for Cause, (b) an opportunity for the Executive to be
heard (together with comments of counsel) before the Board of Directors of the
Company and (c) delivery to the Executive of a notice of termination from the
Board of Directors of the Company stating its opinion that the Executive was
guilty of the conduct set forth above and specifying the particulars thereof.
(c) Good Reason. The Executive may terminate employment for Good
Reason. "Good Reason" means, without the Executive's written consent: (i) a
material adverse change in the Executive's title or the assignment of duties to
the Executive materially and
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adversely inconsistent with the Executive's position; (ii) any material failure
by the Company to comply with Section 3 or other material provisions of this
Agreement; or (iii) any requirement by the Company that the Executive's primary
office location be other than in the states of New York, New Jersey, or
Connecticut. In the event the Executive determines that Good Reason exists, the
Executive must notify the Company of such determination in writing, within sixty
(60) days following the Executive's actual knowledge of the event which the
Executive determines constitutes Good Reason, or such event shall not constitute
Good Reason under this Agreement. Following receipt of such notice, if the
Company remedies such event within twenty (20) days following notice, the
Executive may not terminate employment for Good Reason as a result of such
event.
(d) Executive Management Stockholder Block. The Executive may terminate
employment because the Company, solely due to an Executive Management
Stockholder Block, fails to consummate an initial public offering of its common
stock within one (1) year of the Commencement Date.
For purposes of this Agreement, an "Executive Management Stockholder
Block" means the decision by the Company"s Executive Management Stockholders (as
that term is defined in the Stockholders Agreement, dated as of July 23, 1998,
among the Company and the stockholders party thereto, as the same may be amended
or modified from time to time) to not consent to an initial public offering by
the Company of its Common Stock; provided, however, that an Executive Management
Stockholder Block shall not be deemed to have occurred if a decision or action
by the Board of Directors or the holders of the Company"s Series A
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<PAGE> 9
Convertible Preferred Stock, $.001 par value, prevents the consummation of such
an initial public offering.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company or by the Executive (other
than for death or Disability), the tenth (10th) day after the mailing of the
Notice of Termination or any later date specified therein, or (ii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the date of the
determination of Disability as set forth heretofore, as the case may be.
5. Obligations of the Company upon Termination.
(a) Other Than for Cause, Death or Disability, Good Reason or Executive
Management Stockholder Block. If, during the Employment Period, the Company
terminates the Executive"s employment, other than for Cause, death or
Disability, or if the Executive terminates employment for Good Reason:
(i) the Company shall pay the Executive, in one lump cash sum the
sum of 100% of the Executive"s Annual Base Salary;
ii) within thirty (30) days following the Date of Termination, the
Company shall pay the Executive his Annual Base Salary through the Date of
Termination, or any earned bonus to the extent not yet paid;
iii) at the time annual bonuses for the fiscal year in which the
Date of Termination occurs are paid, the Company shall pay the Executive a pro
rata annual bonus based upon actual performance under the annual bonus plan for
such fiscal year, to the extent not otherwise paid;
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iv) any unvested Company stock options or other stock grants held
by the Executive as of the Date of Termination will vest as if Executive had
remained employed by the Company;
v) to the extent vested and exercisable, any Company stock option
will remain exercisable in accordance with their original term;
vi) the Executive shall continue to receive employee benefits for a
period of six (6) months following the Date of Termination and the Executive"s
eligible dependents will continue to be eligible to participate in the Company"s
medical dental, life and other welfare insurance plans (subject to the Executive
continuing to make any required contributions to such plans) for a period of six
(6) months following the Date of Termination (or the Company shall provide
equivalent benefits for such period); provided, that such continued benefits
shall cease upon the Executive becoming eligible for comparable benefits from a
subsequent employer; and
vii) other benefits, if applicable, shall be paid to the Executive
in accordance with applicable plans and programs of the Company.
(b) Death or Disability. If the Executive"s employment is terminated by
reason of the Executive"s death or Disability during the Employment Period:
(i) the Company shall pay the Executive (or the Executive"s
survivors, if applicable) the Executive"s Annual Base Salary through the Date of
Termination, to the extent not yet paid; and
(ii) all Company stock options and stock awards will vest, and such
stock options shall remain exercisable until the original term of the stock
option.
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(c) Cause; Other than Good Reason. If the Executive"s employment is
terminated by the Company for Cause during the Employment Period or the
Executive terminates employment during the Employment Period (other than for
Good Reason), the Company shall pay to the Executive the Executive's Annual Base
Salary through the Date of Termination and any earned bonus to the extent not
yet paid, and any vested Company stock options will remain exercisable in
accordance with the original term of the stock option. The Company shall have no
further obligations under this Agreement.
(d) Executive Management Stockholder Block. In the event that the
Executive's employment is terminated by the Executive pursuant to clause (d) of
Section 4 above during the ninety (90) day period following the date of such
Executive Management Stockholder Block, then:
i) the Company shall pay the Executive the sum of 100% of the
Executive's Annual Base Salary in twelve equal monthly installments; and
ii) all Company stock options and stock awards will vest and such
stock options shall remain exercisable until the original term of the stock
option.
6. Change of Control. If there is a Change of Control of the Company
(as defined below) all unvested stock options or stock awards shall become 100%
vested. In addition, the Executive may elect within six (6) months following
such Change of Control to terminate his employment and such termination shall be
treated as a termination for Good Reason and the Executive shall receive the
benefits provided in Section 5 (a) above for such Termination. As used
hereinafter, "Change of Control" means the occurrence of any of the following:
(i) the Company consolidates with or merges with or into another person pursuant
to the transaction in
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which the outstanding securities of the Company are converted into or exchanged
for cash or other property or for securities possessing less than 50% of the
voting power of the outstanding securities of the person surviving such merger
or consolidation; (ii) the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person; or
(iii) any "person" or "group" (as such terms are used in Sections 13(d) and 14
(d) of the Act), other than the holders of the securities of the Company as of
the date hereof shall, by virtue of ownership of securities or by agreement or
otherwise, be entitled to elect a majority of the directors of the Company.
7. Right to Purchase Shares. During the first 90 days of the Employment
Period the Executive shall have the right to purchase common shares of the
Company up to a maximum of 215,000 shares at the fair market value of the common
stock, which the Compensation Committee has determined is $10.00 as of the date
of this Agreement. The Executive shall pay for any such purchase in cash. The
Executive agrees to make such representations and agree to such restrictions on
transfer of such shares as the Company may reasonably request to ensure
compliance with all applicable securities laws or agreements with equity
investors.
8. Right to Require Purchase. If for any reason the Company is not a
public company, after the Executive"s employment ends the Executive, in his sole
discretion, may require the Company to purchase the stock acquired by the
Executive in accordance with Sections 3, 4 or Section 7 hereof at its fair
market value as determined by an independent appraiser selected by the parties;
provided, however, that if at the time the Company is required to purchase stock
pursuant to this Section 8, the Board determines in good faith that purchasing
the shares for cash would be
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a material financial hardship for the Company, the Company may
pay for the stock over three years with interest accruing on any unpaid amounts
at the prime rate of a national bank selected by the Compensation Committee.
9. Non-Competition. The Executive hereby agrees that for a period of
three (3) years after the date hereof, such Executive will not, singly, jointly,
or as an employee, agent or partner of any partnership or as an officer, agent,
employee, director, stockholder (except of not more than one percent (1%) of the
outstanding stock of any company listed on a national securities exchange or
actively traded in the over-the-counter market) or investor in any other
corporation or entity, or as a consultant, advisor, or independent contractor to
any such partnership, corporation or entity, or in any other capacity, directly,
indirectly or beneficially, own, manage, operate, join, control, or participate
in the ownership, management, operation, or control of, or work for (as an
employee, agent, consultant, advisor or independent contractor), or permit the
use of his name by, or provide financial or other assistance to, any person,
partnership, corporation, or entity which is in competition with the business as
conducted by the Company on the date hereof.
10. Confidential Information. The Executive agrees that he will not at
any time during or after the Executive's employment with the Company for any
reason, directly or indirectly, disclose to any person any confidential
information of the Company, other than information that is already known to the
public, except as may be required in the ordinary course of business of the
Company or as may be required by law. Promptly upon the termination of this
Agreement for any reason, the Executive agrees to return to the Company any and
all documents, memoranda, drawings, notes and other papers and items (including
all copies thereof, whether
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electronic or otherwise) embodying any confidential information of the Company
which are in the possession or control of the Executive.
11. Intangible Assets and Non-Solicitation.
(a) The Executive shall not at any time have or claim any right, title
or interest in any trade name, trademark, copyright, or other similar rights
belonging to or used by the Company and shall not have or claim any rights,
title or interest in any material or matter of any sort prepared for or used in
connection with the business of the Company or promotion of the Company, whether
produced, prepared or published in whole or in part by the Executive.
(b) Hire or attempt to hire for employment any person who is employed
by the Company or attempt to influence any such person to terminate employment
with the Company, except to the extent the Executive is acting on behalf of the
Company in good faith; provided, however, that nothing herein shall prohibit the
Executive from general advertising for personnel not specifically targeting any
employee or other personnel of the Company.
12. Release. Effective upon the Date of Termination pursuant to the
provisions of Sections 4(a), (b), (c) or (d) of this Agreement in consideration
of the payments to be made to the Executive pursuant to Sections 5(a), (b), (c)
or (d) of this Agreement and as a condition to the payment thereof, the
Executive acknowledges that all such payments, if made in accordance with the
terms of this Agreement shall constitute complete satisfaction of all
obligations owed by the Company to the Executive and shall further constitute
the Executive"s sole remedy against the Company.
13. Arbitration. Any dispute, controversy, or question arising under,
out of, or relating to this Agreement (or the breach thereof) or, Executive"s
employment with the Company
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or termination thereof, shall be referred for arbitration in the State of New
York to a neutral arbitrator selected by the Executive and the Company and this
shall be the exclusive and sole means for resolving such dispute. The
arbitration proceeding shall be governed by the Employment Rules of the American
Arbitration Association then in effect or such rules last in effect (in the
event such Association is no longer in existence) and shall be governed by the
rule of law. Such right to submit a dispute arising hereunder to arbitration and
the decision of the neutral arbitrator shall be final, conclusive and binding on
all parties and interested persons and no action at law or in equity shall be
instituted or, if instituted, further prosecuted by either party other than to
compel arbitration or enforce the award of the neutral arbitrator. The
arbitrator shall take submissions and hear testimony, if necessary, and shall
render a written decision as promptly as possible. The arbitrator may require
any form of discovery (e.g., depositions) in making his decision. In connection
with any arbitration, the Company will reimburse the Executive for all
reasonable attorneys' fees and disbursements as incurred in connection therewith
following the receipt of invoices for such fees and disbursements. If the
Company prevails on all substantial claims in the dispute submitted for
arbitration then the Executive will reimburse the Company for such legal fees.
The arbitrator may determine and may award costs and attorneys' fees as part of
his decision.
14. Assignment; Successors.
(a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, shall not be assignable by the Executive. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and administrators.
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(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns, provided that the Company may not
assign this Agreement except in connection with the assignment or disposition of
all or substantially all of the assets or stock of the Company, or by law as a
result of a merger or consolidation. In the event of such assignment a failure
by the successor to specifically assume in writing, delivered to the Executive,
the obligations and liabilities of the Company hereunder shall be deemed a
material breach of this Agreement.
(c) The Company shall require any successor or assignee to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would have been required to perform it if no such assignment had
taken place.
15. Indemnification. In addition to any rights to indemnification to
which Executive is entitled to under the Corporation's Articles of Incorporation
and Bylaws, Company shall indemnify Executive at all times during and after the
term of this Agreement to the maximum extent permitted under Delaware Business
Corporation Act or any successor provision thereof and any other applicable
state law, and shall pay Executive's expenses in defending any civil action
suit, or proceeding in advance of the final disposition of such action, suit or
proceeding, to the maximum extent permitted under such applicable state laws for
Executive's action or inaction on behalf of the Company under the terms of this
Agreement. In connection herewith, if the Company has or obtains directors or
officers insurance, so-called, Executive shall be covered by such policy to the
same extent as the peer senior executives.
16. Miscellaneous.
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(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without reference to its conflict of
law rules.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(c) This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(d) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Alf T. Hansen
1 Greenbrier Court
Skillman, New Jersey 08558
If to the Company:
Lexent Inc.
Three New York Plaza, 11th Floor
New York, New York 10003
Attention: Chairman
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph. Notices and communications shall be effective
when actually received by the addressee or three (3) days after the initiation
of delivery.
(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such
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provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
(f) Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
(g) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(h) Except as provided herein, the Executive and the Company
acknowledge that this Agreement constitutes the entire agreement between the
parties and supersedes any prior agreement between the Executive and the Company
concerning the subject matter hereof.
(i) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
(j) The parties hereto shall execute and deliver all documents, provide
all information and take or forbear from all such action as may be necessary or
appropriate to achieve the purposes of the Agreement.
(k) If any provision of this Agreement, or the application of such
provision to any person or circumstance, shall be held invalid, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid, shall not be affected thereby.
(l) If any excise tax is imposed upon the Executive under the Internal
Revenue
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Code by reason of payments or vesting made on a Change of Control the
Company shall gross up the payments to make the Executive whole for such excise
tax.
(m) The Company shall reimburse Executive for all reasonable fees and
expenses of Executive's attorneys and accountants incurred in connection with
the negotiation and preparation of this Agreement.
(n) The Executive affirms and represents to the best of his knowledge
and belief that as of the commencement of his employment by the Company on the
Commencement Date, he will be under no obligation to any former employer or
other party which imposes any restriction upon, the Executive's acceptance of
the employment hereunder with the Company, the employment of the Executive by
the Company, or the Executive's undertakings under this Agreement.
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<PAGE> 20
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization of its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
LEXENT INC.
By /s/ Hugh O'Kane, Jr.
-------------------------------
Hugh O'Kane, Jr.
Chairman
By /s/ Alf T. Hansen
-------------------------------
Alf T. Hansen
CEO and President
20
<PAGE> 1
EXHIBIT 11.1
Lexant Inc.
Computation of Earnings Per Share
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the year ended December 31, 1997 For the year ended December 31, 1998
------------------------------------ ------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 2,189 $ 3,828
Less: Preferred Stock Dividends -- (301)
-------------------------- --------------------------
NET INCOME PER SHARE - BASIC:
Income available to common shareholders 2,189 15,144 $ 0.14 3,527 15,144 $ 0.23
========= =======
EFFECT OF DILUTIVE SECURITIES:
Convertible preferred stock -- -- 301 2,448
Common stock options -- -- -- --
-------------------------- --------------------------
NET INCOME PER SHARE - DILUTED:
Income available to common shareholders
plus assumed conversions $ 2,189 15,144 $ 0.14 $ 3,828 17,593 $ 0.22
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1999
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net Income $ 9,256
Less: Preferred Stock Dividends (690)
--------------------------
NET INCOME PER SHARE - BASIC:
Income available to common shareholders 8,566 15,147 $ 0.57
=========
EFFECT OF DILUTIVE SECURITIES:
Convertible preferred stock 690 5,827
Common stock options -- 888
--------------------------
NET INCOME PER SHARE - DILUTED:
Income available to common shareholders
plus assumed conversions $ 9,256 21,862 $ 0.42
=====================================
</TABLE>
<PAGE> 1
EXHIBIT 21.1
The subsidiaries of the Registrant are:
1. National Network Technologies LLC, a Delaware limited liability
company; and
2. Hugh O'Kane Electric Co., LLC d/b/a/ Hugh O'Kane Datacom, a Delaware
limited liability company.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 1, 2000 relating to the financial statements of Lexent,
Inc., which appear in such Registration Statement. We also consent to the
references to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, NY
February 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,158
<SECURITIES> 0
<RECEIVABLES> 52,350
<ALLOWANCES> 3,602
<INVENTORY> 0
<CURRENT-ASSETS> 52,810
<PP&E> 9,659
<DEPRECIATION> 3,479
<TOTAL-ASSETS> 59,535
<CURRENT-LIABILITIES> 27,957
<BONDS> 0
12,491
0
<COMMON> 16
<OTHER-SE> 2,855
<TOTAL-LIABILITY-AND-EQUITY> 59,535
<SALES> 150,862
<TOTAL-REVENUES> 150,862
<CGS> 120,750
<TOTAL-COSTS> 132,500
<OTHER-EXPENSES> 27
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,104
<INCOME-PRETAX> 17,231
<INCOME-TAX> 7,975
<INCOME-CONTINUING> 9,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,256
<EPS-BASIC> 0.57<F1>
<EPS-DILUTED> 0.42<F1>
<FN>
<F1>WEIGHTED AVERAGE COMMON SHARES INCLUDES PREFERRED SHARES CONVERTIBLE INTO
COMMON SHARES UPON THE COMPLETION OF THIS OFFERING.
</FN>
</TABLE>
